Ground-and labor-saving Progress: How do they affect the Income Development in Agriculture?

In this paper, effects of land and labour saving progress on the economic efficiency of agricultural production and farmers' income levels are examined by way of a theoretical analysis and a long-term empirical investigation for Germany. In a first step, hypotheses referring to the subject have been derived. Taking into account the usually stagnating and inelastic demand of agricultural products in developed countries supply increases, caused by land saving progress, should lead to price level decreases followed by decreases in economic efficiency as well as in real per-capita incomes in the agricultural sector. Using data taken from the national system of accounts for the agricultural sector, comprising half a century from 1960 to 2010, the above stated hypotheses could empirically be confirmed. The average real income per agricultural product unit as well as per agricultural land unit has shrunk continuously over time. What is more, labour saving progress, causing movements of agricultural labour into other sectors of the economy, was not able not prevent shrinking incomes per remaining agricultural labour unit. It was only through continuously increasing transfer payments into the agricultural sector that farmers have been able to maintain growth rates of their per-capita incomes comparable to those achieved in other sectors of the economy. In the closing segment this paper discusses other options in case farmers were expected to maintain both income levels and income growth rates comparable to those achieved in other sectors of the national economy without future transfer payments.