The inverse relationship revisited: returns to farm size and efficiency in the PLAS project

This paper presents a novel application of the non-monotonic Stochastic Frontier model to South African agriculture in order to investigate the inverse farm size relationship. Using data for 1989 beneficiary farms from the Proactive Land Acquisition Strategy programme, the marginal effects of farm size, managerial capacity and extension frequency on inefficiency and output are estimated and the effect of the Recapitalisation and Development programme evaluated. The estimated results demonstrate that increased farm size is associated with decreasing returns to inefficiency reduction. For livestock farms beyond 2415 ha land is no longer significant in affecting inefficiency. For livestock farms in the 90th and 95th percentile of farm size, the marginal effect of increasing farm size is an increase in inefficiency although this effect is not significant. The non-linearity of the marginal effects of farm size justifies adopting the non-monotonic Stochastic Frontier approach to model the inverse relationship.