Farm Size, Technology Adoption and Agricultural Trade Reform: Evidence from Canada

Abstract

Abstract Using detailed census data covering over 30,000 farms in Alberta, Saskatchewan and Manitoba, Canada, we document the vast and increasing farm size heterogeneity, and analyse the role of farm size in adapting to the removal of an export subsidy in 1995. Consistent with the Alchian‐Allen hypothesis, the increase in per‐unit trade costs due to the reform was associated with farms of all sizes shifting their production of crops from low value wheat to higher value canola. We find that switching to new labour‐saving tillage technologies and away from summerfallow in response to the large negative shock to grain prices caused by the reform varied across the farm size distribution. We develop a theory of heterogenous farms and technology adoption that can explain our findings.