Farm Business Assessment Using the Advantage Matrix:

On the Relationship Between Farm Size and Profitability

Abstract

The purpose of this study is to investigate the relationship between farm size and profitability using the concept of the advantage matrix. The advantage matrix indicates both potential merits of scale economy and potential strategies farmers can adapt in agriculture. Using the large datasets of the Agricultural Business Survey in 2016, 2017 and 2018, we examined the relationship between farm size and profitability as a pilot study, thereby analyzing possible strategies that lead to a higher profitability. Our results are as follows: First, we could not confirm the economics of scale except for paddy, land intensive crops, dairy and pig farming, indicating that expanding the scale of farm management does not necessarily contribute to profitability. Second, the fact that the returns on total capital vary widely when the amount of assets is small or moderate signifies that agricultural investment at an initial stage is very important as a factor to determine the profitability. Third, as the area of cultivated land increases, some of farm business were found to have fallen into the so-called "valley of death", facing the reduced rate of returns. From these results, we conclude that it is necessary to focus on agricultural investment in order to consider strategies to increase the profitability of agriculture.