STEG Working Paper Series Research Theme 3: Agricultural Productivity and Sectoral Gaps

Nutrition Demand, Subsistence Farming, and Agricultural Productivity

WP010 Gordeev NutritionDemandSubsistenceFarmingAndAgriculturalProductivity REVFeb23.pdf

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In many of the poorest countries, agriculture is unproductive and subsistence farming is widespread. I propose nutrition demand as a mechanism that drives the production decisions of subsistence farmers and ultimately contributes to low aggregate agricultural productivity. I explore this mechanism in a model of farm-operating households facing explicit caloric needs and costly domestic trade, and test the model’s predictions on Malawian household-level data. In the model and in the data, the smallest farmers focus their consumption on obtaining calories and specialize their production in unsold staple crops; medium farmers diversify both their diet and their subsistence production; the largest farmers shift consumption to purchased goods by producing and selling marketable farm products. I quantify the aggregate implications of this farm-level product choice using the model. It suggests that lowering trade frictions enough for the average share of output sold by farmers to reach even 50% would make the country’s agricultural sector 42% more productive. Half of this increase is caused by the mechanically reduced erosion of output, and the other half by a better alignment of individual farmers’ product choice with their comparative advantage rather than their family’s nutritional needs or food preferences.

STEG Working Paper Series

Misallocation and Product Choice

Stepan Gordeev, Sudhir Singh • Research Theme 3: Agricultural Productivity and Sectoral Gaps

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