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 • Research Theme 3: Agricultural Productivity and Sectoral Gaps