The productivity of Saskatchewan farms is closely tied to the farmer's education level and the number of acres farmed. The spouse's education is also an important input into the production process

Furtan, W.H.

Henry, O.L.

AgEcon Search: Research in Agricultural and Applied Economics

Give to AgEcon SearchThe World’s Largest Open Access Agricultural & Applied Economics Digital LibraryThis document is discoverable and free to researchers across the globe due to the work of AgEcon Search.Help ensure our sustainability.AgEcon Searchhttp://ageconsearch.umn.eduaesearch@umn.eduPapers downloaded from AgEcon Search may be used for non-commercial purposes and personal study only. No other use, including posting to another Internet site, is permitted without permission from the copyright owner (not AgEcon Search), or as allowed under the provisions of Fair Use, U.S. Copyright Act, Title 17 U.S.C.No endorsement of AgEcon Search or its fundraising activities by the author(s) of the following work or their employer(s) is intended or implied.! ,. / .C.:t.;<;,."":_ li('/ . ' . ' ' {t t, -~ .-. \· THE ROLE OF EDUCATION ON "SASKATCHE\·:AN GRAIN FARl~S O.L. HENRY:/: W.R. FURTAN* * u . . niversity of ~:.1skatchewan, Caa.i~rla. · · .... t /11f ~ . UNIVERSITY0Fc"A-;::-.;;5RNIA~, r,l)\''3 ·. 1L 1 2:·: 1_978 / Agricult~ral fro~~~'::,~~ __ { · . I I ... .. ... ABSTRACT The productivity of Saskatcbc\.l.in farms is closely t:led to the farmer's• education level and the number of acres farmed. The _spouse's education is also an important inpuc into the production process. ·. · THE ROLE OF EDUC/\TiuN ON ~~/\SK/,'l'CllE~.JJ\N Cl!AlN FARMS INTRODUCTION Agriculture is.the largest single income earning sector in t Snskatchewan. Between the years 1974 and 1976, agriculture provided an average of 45% of the annual provincial G.N.P. This underlinP.s the importance of agriculture to the Saskatchewan economy. Thus it is important that factors affecting the productivity of Saskatchewan agriculture be understood. One manner in which the productivity of an economy can be understood is through the use of the production function. 'fhepurpose of this paper is to examine the role of education, both formal and informal on the productivity of Saskatchewan agricultu~e. The first section provides a brief rev:i"!w of Saskatchewan agriculture. The second section deals with some of the theoretical considerations regarding the role of education in production while the third section presents the ffiOdel to be estimated. The final s~ction of tae paper discusses the results of the model and draws some implicatio:1s, STRUCTURE OF SASKATCHEWAN AGRICULTURE During the last 50 years and especially over the last 30 year period, the structure of agriculture in Saskatchewan was subjected to · dramatic changes. There has been the rapid expansion in the numbe:r- · of ~~res cultivated ~er farmer together with the rapid increase in farm capitalization. These changes arc in part a result of the ter·hnology which farmers adopted in their quest for greater profits and efficiency. I Saskatchewan is now characterized by a highly capital intensive prod-uction system. Farmers have tended t..> substitute capital f-:,r lab0ur rather than capital .for land which has caused a substantial rise in the I j I I i ' f .1 I ' ' -1 '! ' -2-lnnd/labour ratio. 1'he changes in the structure of Snskatch,?wan I s agriculture have t provided for increases in.the physital output. However, they have not greatly increased the productivity of the_ total agricultural se:ctor. Furtan and Ulrich (1977) have shown that the potential productivity frontier has been continually shifting outwards through research and development. Even though the total amount of output in Saskatchewan has been increasing, the total amount of input has also been increasing and at a faster rate. This situation leads to a reduction of productivity and indicates that the input mix was being changed. Productivity is an important element in the determination of the net farm income received ~y farmers. Through its impact on the net farm income, productivity can influence the types of technology farmers adopt a~d hence affect the direction in ~~iich changes in te~hnology occur. The productivity of an ~c~nomy can be increased iv several ways, however, there are two major me:thods. The first is ti:1::ough r:he adoption of new technology whicl, increases output per unit of input, and the second is through the use of better manag~ment techniques. This study considers the second method of increasing productivity. The demand for Saskatchewan grain is very elastic. The quota system which dztermines the grain sold to the Wheat Board has been based on a number of different criteria all of which relate to acreage and not to productivity. Consequently, f:rrmers have not had an incentive to increase total output and t~u~ increase productivity. (i. e, in some years farmers were not able to sell all the grain they could produce because of quota co1wtraints). • 1 .I I 1 I I I J ' i ,,.-1 I -3-THEORETlCAL CONSTDERAl'IONS Recent studies"of farmer decision making have been based on the prenise thn1: the human capital endowment in th-:! farm operator is a . source of increased productivity. Obv1<.:rnsly the decision maker who allocates his resources in a more effici~int manner reaps the benefits in the form of reduced costs and increased profits. Schultz [1975], Huffman [1976] and Khaldi [1975] are a few of the.economists who have determined that this decision making ability of the farmer is di::-ectly related tci his education and can be explained by ecc,nomic variables. Welch [1970] has shown that education does not only enhance the farmer's decision making ability but it also improves his physical efficiency. These.two aspects of education's contribution to production are called the allocative and the worker effects respectively. The allocative effect refers to the contribution which education makes to the producer's ability to decode the information available to him and thus increase his allocative efficiency. The worker effect ls the effect of producing more physical output from the same amount lf resources. Welch claims that both of these effects can be obtained from properly specified production functions. A gross sales (gross revenue) production function for grain in Saskatchewan was specified with the dependent variable (Z) as a function of four convellticnal inputs, education and years of farming (experience) • Two of the traditional inputs, land and fertilizer are specified to be functions of ed,1ciJ.t.".•.)ll (i.e. the allocative ability of the farmer is portrayed through the use of these two ir1puts). The use of 'the quota which has been tJed to the land base makes land an,"extrernely important input in the gross revenue function. Also, fortil:lzcr and chc·r.li.cal inputs / -4-~v.J, '· I> arc re1nt i Vl!ly new to Saskatch,•w,m agriculture ~ind have 1 undergone m1mcrous technical changes in recent.years. The gross revenue function I can then be stated as Z = P.q (L(E), FC(E), N. M, !, Y) (1) where the it1dependcnt variables are L (lar.d), FC (fertilizer and chemicals), N (labour), M (machinery costs), E (education) and Y (years of farmin~). The marginal product of education is az/aE = P • aq/a1 • a1/aE + Paq/aFc· • aFc/aE + Paq/aE (2) If az/c.lE > O then education enhances the farmer's allocative and decision - "(~ making ability.-, 1 Morlel Estimation The specification of equation (1) requires that three equacions be estimated. First a com?osite gross-revenue function 5 Bj a. z = A TI xl.·J· E e; i=l must be estimated. Secondly twc auxiliary equations s . xlj = DE e; and \' . x2j = TE e; (3) (4) (5) also need to be estimated in order to calculate az/aE. The dependent variable Z is an aggregate of the output of grain. x. represents the 1j four (4) conventional inputs and experience which were measured and used in the p coduc tion process. · Ti1ese variables are x 1 (land), x 2 (fertilizer and chemicals), x 3 (labour), ::4 (machi_nery costs), x5 (years o·f farming). LanJ ivas ?.ntered as the nu~bcr of improved acres, while labour wn1~ ·mensur.ed as the dnys worked on the farm· by the operator, plus famqy an(! hin,d l::ihourcrs. Fertilizer ,md chemicnl:, WQrP au;,egated in dollar ·ll\rnw and entered as t:he fertili~er vari.:1b1L,. · The machinery ( \ 1 I ·-5-inpllt wa~ measured as cash machinery expense. plus neventcen percent of machinery stock. Years of farming as the name suggests is the time . -.· period over which the farmers operated their farms. The auxiliary equations in this model,equations (4) and (5), postulated that the amount_s of the c:1nventional inputs land and fert-ilizer used in g~ain production are functions of education. This facilitated the measurement of the allocative effect of education by the marginal product formula. Three educaticn variables were measured and represented in E. They are operator's education, interactive education and the operator's year of schooling. Operator's education is the years of schooling weighted by the national income weights developed by Welch. The interactive variable is the product of the weighted operator and spouse 1 education and the years of schooling is a measure of the nu.~ber of years ) 0"i the individual operat:,r attended school; Results The results of the regressions wh5-ch were estimated are reported in Table 1. The three functions displayed decrec.!sing returns to scale·. They had function elasticities ranging frcm .87 _to .97. ·However, when the significant (90%) output elasticities were considered, the returns to scale ranged between .91 and 1.0. n:.e·existence of decreasing returns to scale sugg~sts that far~ers are close to an equilibrium position. These results further imply that there are no efficiency benefits to be C.:lptured from the scale of prevailing technology. The positive and significant parameter of the- experience variable waR an in:portant result from these rc3ressions. ""When coupled with the marginal product for experience reported in Table 2, it indicates that -6-grain fat'mPrs woulcl increase ti1eir gross sales by increasing the numb.er of years _t.h'!Y spc~nd far.ming. In the situation of limited technical change in Saskatchewan, the informal edt,cation captured in the experience variable was a stronger force in incremd .. ng the productivity of the farmers than the worker effect obtained from formal education. These results support the hypothesis that grain farmers approach some "best" method of seeding, spraying and producing grain, as they experience the economic consequences of taking different farming actions. The importance of land in the production process was illustrated' •. by the strngth of the land variable. Table 1 shows that land was the doudnant variable scarcely permitting the other variable to enter the regression significantly. In all of the regressions, land had output elasticiti~s approximately equal to .88 with hight ratios which signified the strength of the variable. The land variabJes also dis-pla1c1~ strong posit_i.ve marginal products which provided s01,1e support for the a~tiou of farmers who ih:reased the acreages of their farms, as a mLthod of improving efficiency and increasing profits • . Fertilizer was as-~ther important variable in this study. This variable has been used in several studies as a decision variable and as an indicator of technical change [Hayami and ·Ruttan, 1971]. The parameters of the fertilizer variable were positive and significant in all of the regressions. The variable also had a positive marginal product as show11 in Table 2. The amounts of both land and fertilizer used -~n the production process are functions of education. TI1ese variables are crucial to the pro-duction of grain and their efficient 1we is determined by the allocative ability of the farmers. ;( -· I -7-An investigation of th~ results obtained by estimating the auxiliary equations shows that there is_ a strong allocative effect in the use of . fertilizer and land. Tables 3 and 4 indicate that both fertilizer and land are functions of education, More in:portantly the amounts of the inputs used are significant functio~s of interactive education. These results suggest that the spouse played an im?ortant role in the decision making process on the grain farms. This may be explained by the fact that the decisions, and the times the decisions have to be made are so structured that sufficient discussion between farmer and · spouse can occur to influence the production systems used by the farmers. Table 5 gives the total allocative ability measured by the production function (i.e. az/aE). These results demonstrate an interesting relationship between .fonnal and informal education of grain f2mers. The experience of the farmers appears to be capturing the effect of performing the routine taskc of farming which may have been attributed to the worker effect 9£ formal education. Formal education, however, does have its role via the allocative effect. This effect determines the efficiency wit.h which farmers allocate their resources and improve their productivity. Conclusions 0 This study shows that education had an import:!nt role to play in the production of grain in Saskatchewan. The regression displayed decreasing returns to scale and, contrary to expectations it was the allocative effect which was strong rather than the worker effect. Thus, it can be concl:rded that farmers can increase their productivity by augmenting their allocative ab1.l1 ty thrcugh acquiring more ccucatic,n. The s·trcngth of the land and e:<perience vari.ables should be of -8-some iP1portnncc to policy malwrs. It i::; .1~vidcnt that Saslrntchcwan farmers still fa,:e a land-bas<?d technology. There is then some theor-etical justification for the· c1gr,regate actions of the farmer. The ' results indicate that farmers can incre;3se their productivity by increasing their land base and their 2xperience on the farms. It appears theu, that the land and education.(both formal and informal), are the most important assets the Saskatchewan far.mer possesses. More importantly, neither of these inputs can be extracted from the farmer without very heavy costs to hire and to society. . -9-TABLE 1 REGRESSION EQUATIONS FOR GRAIN fUNCTIONS - t . Variables Log lgl Constant A 1.77 Land xl .88 (5.34) Labour x2 -.05 (-. 36) Op. Eduction Edl -.05 (-. 34) Int. Education F.d2 Years of Schooling F.d' 3 Fertilizer x3 .02.8 (1.44). Machinery Costs x4 .03 (1.13) Yea~s of Farming XS .11 (1.78) Number of Farms 44 R2 .66 * rn. 1.0 ]. l:BA i 1.03 *. is the 90% level of significance. A is the 80% level of significance. t vnlucs arc in parenthesis. lo 02 1.74 .90 (5.42) -.048 (-. 345) -.045 (- .549) .029 (1-.48) .03 (1.16) .11 (1.77) 44 .66 • 91 .94 lg3 1.90 .88 (5.34) -.05 (-.38) -.13 (-.49) .03 (1. 49) .029 (l.13~ .11 (1. 74) 44 .66 .9966 1.026 -10-TABLE 2 MARGINAL PRODUCTS FCR GRAIN Vario.bks 1 1 gl g 2 Land 37.23 37.78 Labour -6.88 -6~88 Fertilizer .99 1.01 Machinery .093 .09 Years of Faroi:·:g 213.75 213 .. 75 TABLE 3 FERTILIZER AS A FU~;CTlO~~ OF EDUCTION Variables Coosta_nt Op. Education Int. Education Years of Schooling Number of Farms r 11 1.25 1.70 (1.69) 44 .06 Fl 2 1.14 1.15 (1.90) 44 .07 1. g3 37.18 -7.21 1.03 .09 213.75 Fl 3 -2.10 3.78 (1.95) 44 .08 is tot::il .fertilizer US.1f,l' wht:::rc j :a 1,2,3 fo.: op. C'd., int. eJ., ,:.md years of si.:hoolJ..r,g respect!\ cl?. -11-TABLE 4 LAND AS A FUNCTION OF EDUCATION Variables Lll Ll2 Ll3 Constant 2.86 2.76 2.88 0?• Education .061a (.35) Int. Education .19 (1.93) Years of Schooling -.003 (-.009) Number of Farms 44 44 44 R2 .002 .08 .0001 (a) A one tailed test was hypoth-=sized and .the t ratios are shown in brackets TABLE 5 ALLOCATIVE EFFECT OF EDUCATION THROUGH FERTILIZER AND L.~ USE Operator Education Interactive Education Years of Schooling Allocative Effects Fertilizer 4.92 1.72 -7139 Land Total --------------.0724 4.99 .125 1~845 -.0007 -7139 REFERENCES W.JI. Furtan ;md A. Ulrich, "Fnr:tors Controlling the Modernization of Saskatchcw,:111 Agriculture", BL: 77-2, Department of Agricultural Economics t University of Saskatchewan, August, 1977. ·•· W. Huffman, "The Productive Value of Hurn:n, Time in U.S. Agricultiire", American Journal of Agri.cultural Economic:::, Vol. 58, No. 4, pp. 672-684, 1976. N. Khaldi, "Education and Allocative Efficiency in U.S. Agriculture", American Journal of Agricultural Economics. Vol. 57, No. 4, pp. 650-657, 1975. F. Welch, "Education in Production", Journal of Political Economy, Vol. 78, pp. 35-59, 1970. T.W. Schu~ "The Value of the Ability to Deal with Disequilibria", Jourual of Economic Literature, Vol. 13, No. 3, pp. 827-847, 1975. 

THE ROLE OF EDUCATION ON SASKATCHEWAN GRAIN FARMS

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