Economic growth is having many important impacts on the structure of farming. One of the greatest effects of national economic growth on farm structure comes through changes in the relative prices of resources.
At low stages of growth, as in the United States a century back or in underdeveloped countries now, the supply of capital is small relative to the supply of labor. Consequently, the price of capital is relatively high, and the price of labor is relatively low. This situation of resource price favors farming methods or technology resting mainly on labor. The advantages of large-scale production methods, as represented in per-unit of production, then are small; large farms and large-scale enterprises have little advantage over smaller units.
Under an advanced stage of economic development, as in the United States currently, the relative supplies and prices of capital and labor are reversed. The prices of these two resources then favor greater capital investment and the substitution of capital for labor. New technologies resting more on capital are then favored. New capital technologies are now feeding rapidly into American agriculture. Under technologies employing a large amount of capital, fixed costs ordinarily are large and are generally committed to a single enterprise, and per-unit costs of production tend to be lower for large volumes or farms as compared with operations on a smaller scale.
Heady, Earl O. and Gibbons, James R.
"Cost economies in cattle feeding and combinations for maximization of profit and stability,"
Research Bulletin (Iowa Agriculture and Home Economics Experiment Station): Vol. 36
, Article 1.
Available at: https://lib.dr.iastate.edu/researchbulletin/vol36/iss562/1