ECONOMIES OF SCALE AND SCOPE IN AGRICULTURE

Abstract

For decades, agricultural development has largely been based on a modernization paradigm based on specialization, intensification and scale-up. Economies of scale have been a favorite topic of economic theorists for a very long time, but due to vague definitions of economies of scale and methods of quantification, research does not provide clear evidence of economies of scale. Also, measuring economies of scale or size is more difficult when firms or farms produce multiple products. Economies of scope occur when the same resources are used to produce two or more products simultaneously and the average cost of each product is reduced. Agricultural development based on the diversification paradigm takes advantage of the opportunities of the economy of scope. The purpose of this study is to examine the interpretations of the concept of economies of scale and economies of scope and to prepare an overview of their application in agricultural economics research. The review is based on a systematic analysis of scientific literature sources. 48 sources were used, examining the theoretical or applied issues of economies of scale and economies of scope in agriculture. Both aforementioned concepts have been found to imply decreasing average product costs as production increases. Economies of scale occur when increasing the volume of production of one product, and economies of scope occur when several products are produced at the same time, incurring the same costs. Economies of scale are related to the size of the farm and are achieved in larger specialized farms. And economies of scope are most often associated with smaller, diversified farms.