Hierarchies are a direct contradiction to equality: as soon as one person issues orders to another or is considered superior in any other way, these two persons can no longer be considered equal. Anarchists are the group who take this challenge most seriously and, in the extreme, even parenting can be considered as immoral, as it involves clearly hierarchical structures (Tremblay 2008).

On the other hand, hierarchies are often self-imposed, such as in our relationships with “celebrities”, a keen focus of attention for many people. If you buy tabloid newspapers, watch TV shows or queue for tickets to see a particular group of people, this hierarchical structure between them and you cannot be so much of an evil. Media experts (Gorin and Dubied 2011) consider the rise and fall of celebrities to whom we “submit” ourselves in the public discourse as a way of negotiating social values.

In agriculture, hierarchies start in the farming family, but extend well into the relationships with associated businesses and the public administration. These three level fields for unfolding hierarchies will be covered in this chapter.

2.1 Public: The Agricultural Administration

All businesses need an institutional and legal framework in order to conduct their transactions securely. In many sectors in many countries, the degree of protection goes far beyond the provision of such a framework, but usually not as far as in agriculture. In countries such as Norway, Switzerland and Iceland, more than half of agricultural income is due to political intervention, and it is the public administration that has to provide the institutional framework for these interventions. By converting support from market intervention to direct payments in the 1990s in most Western countries, the public administration gained an even more central role. Whereas previously the administration had mainly administered certain purchases and sales of large quantities of commodities and imposed tariffs on the border, the introduction of direct payments necessitated exchanges with and controls of every single farm.

Looking at the agricultural administration, three levels can be distinguished:

  • Farmers are mostly confronted with local administrations which are usually financed by regional or even local authorities. They receive farmers’ payment applications, process them, check that all information in the application is correct, and hand out payments. Other divisions check applications for new farm buildings or for the refurbishment of old ones, or check whether all hygiene regulations are met in barns or farm salesrooms.

  • At the other end of the spectrum, all national governments (and organisations such as the European Commission) also have their agricultural administrations. They work on political strategies which they transform into agricultural legislation, try to simplify or prevent agricultural trade, and represent their country’s agriculture on international occasions.

  • In many countries, particularly large ones, there are intermediate levels of the agricultural administration. Their task is to translate the legislative foundations into implementation or to design regionally specific programmes.

The following theoretical concepts usually apply to all three levels of the agricultural administration, albeit often in different respects.

2.1.1 Weber’s Iron Cage

In any writing on the rationale of the public administration, Max Weber should play a prominent role, partly because the German sociologist (1864–1920) was among the first to give the public administration a central position in sociological theories. Weber’s general focus was on two concepts: one was rationalisation, which he considered as the most general element in our historic development; the other was domination, an apparently legitimate exercise of power. It is obvious that both concepts are easily traceable in the apparatus of public administration. His famous terming of the administration as an “iron cage” to describe both principles can be found in his seminal work The Protestant Ethic and the Spirit of Capitalism:

The Puritan wanted to work in a calling; we are forced to do so. For when asceticism was carried out of monastic cells into everyday life, and began to dominate worldly morality, it did its part in building the tremendous cosmos of the modern economic order. This order is now bound to the technical and economic conditions of machine production which today determine the lives of all the individuals who are born into this mechanism, not only those directly concerned with economic acquisition, with irresistible force. Perhaps it will so determine them until the last ton of fossilized coal is burnt. In Baxter’s view the care for external goods should only lie on the shoulders of the ‘saint like a light cloak, which can be thrown aside at any moment’. But fate decreed that the cloak should become an iron cage. (Weber 1905: 28)

This paragraph about the non-destructible institutional setting of administration, like many other parts of Weber’s writing, draws a rather bleak and pessimistic image of the administration. While Weber describes the irresistible power of the administration in general, this certainly can also be applied to agriculture. In fact, the bureaucratic burden is particularly high in systems where farmers receive a lot of public support: in order to prevent abuse, checks are frequent and regulations are tight. But even in economies such as the Netherlands which traditionally provide a flexible framework for their entrepreneurs, “inefficient government bureaucracy” is among the top three factors considered as problematic for doing business among Dutch farmers (OECD 2015).

Being (or having been made) aware of the slack that an overwhelming bureaucracy creates for farmers, some governments have made an effort to reduce red tape. One example is the United Kingdom. A government commission (Department for Environment, Food and Rural Affairs 2014) reviewed the agricultural legislation, analysing which articles could either be deleted or improved. Out of 516 regulations, the commission recommended removing 156; it issued recommendations to inspect farms less frequently and to dispense six monthly reports on the numbers of mosquitoes imported for research purposes.

Such attempts fit in well with Weber’s concept of formal rationality. In this, he described the attempt to establish organisational forms which are as resource-efficient as possible. In Weber’s view, bureaucratic administration was the primary way in which rational-legal authority has developed in formal organisations. There was such a broad general acceptance in society that the administration would not need to defend its legitimacy; it could fully focus on its task to find logical solutions for the organisation of public life. For the agricultural administration, both forces can be considered in this context: the desire to regulate all cases by issuing additional laws and orders, but also the desire to simplify public life by cutting red tape, rationalising the interactions between farmers and the public administration.

2.1.2 Niskanen’s Bureaucrat

While it is possible to understand Weber’s sceptical view of bureaucracy without a large body of prior knowledge, this is not the case for Niskanen’s (likewise sceptical) perspective. William A. Niskanen built strongly on Public Choice Theory, which should be introduced briefly at this point.

While traditional economic theory focused on the consumer’s wish to maximise utility, economists would often also (mostly implicitly) assume that policy-makers would steer this process in the best possible direction. Early public choice theorists found this unsatisfactory, and inconsistent with what they observed in the political arena. What would happen, they asked, if the assumption about individual utility-maximisation were extended to the breed of policy-makers? Models were developed that showed, for example, how political parties, in attempting to maximise their votes, would target and compete for the median voter. Or how interest groups maximised the numbers of their members or their political influence.

For Niskanen, who started his career in the US Federal administration before going into academia, it was only a small step to extend this concept to the public administration. If consumers wanted to maximise consumables and political parties wanted to maximise votes, what was the objective function of someone in the administration?

His answer in his 1971 book Bureaucracy and Representative Government was: the budget. If a person in the administration could choose between a large and a small budget, she would typically choose the large one for two reasons: one, (potential) recipients of the money would try to please her (not necessarily by outright corruption, but at least by an increased degree of attention). Two, both her wage and power would be strongly dependent on the level of her budget. It is true that most salaries in the civil service are standardised by the public wage system, but someone with a million euro budget will probably be put into a higher wage class than a colleague with a budget of 10,000 euros. Niskanen’s book has therefore been cited in more than 8000 scientific publications, and his conceptual approach has never really been challenged.

How does this translate into the realm of agriculture? Let us use the German Agency for Non-food Uses (Fachagentur Nachwachsende Rohstoffe e.V.—FNR) as a case in point. This agency was founded in 1993 to distribute money for research into the non-food uses of agricultural materials on behalf of the German Ministry of Agriculture, ranging from new ways to convert wood into heat to ways to develop lubricants from vegetable oil. In 1994, it had 20 employees to administer a budget of 50 million German marks (26 million euros). In 2017, the same agency had 93 employees and a budget of 61 million euros.

It is likely that Weber and Niskanen would have different perspectives on this success story. Weber would probably stress the increased relevance of non-food uses from agriculture. Would not the increased need for a carbon-neutral economy justify any budget rise for the use of natural material as the most rational decision? Maybe, Niskanen might answer, but why would increasing the budget by a factor of 2.3 necessitate increasing the number of staff by a factor of 4.7?

Whatever good reasons could be found to justify the larger staff of this agency (and, of course, of many other government organisations in many countries), it is likely that Niskanen’s approach would provide a reasonable contribution to explain the development. Public service organisations certainly have dynamics of their own, and in any scientific appraisal of the administration this should be one of the aspects to consider.

2.1.3 Principal-Agent Issues

With Niskanen’s concept of the budget-maximising bureaucrat, the epistemological potential of ‘maximising utility’ in and through organisations had certainly not come to an end. Only a few years later, the economists Michael Jensen and William H. Meckling brought this paradigm into the middle of hierarchical structures by developing the principal-agent model (Jensen and Meckling 1976). This model takes into account that, within a hierarchy, the promising strategy to maximise utility of the superior person (the principal) will be different from that of the subordinate person (the agent).

The foundation of these different positions (and resulting different optimum strategies) is information asymmetries. Imagine a hierarchy in which the agent is obliged to accomplish a certain task for the principal. And consider that it is usual for the principal to have less information on this task: how long it takes, how difficult it is to complete, and what the properly completed task should look like. Usually, the principal would supervise several agents who are contracted to do tasks that the principal himself may never have done.

Such asymmetries cause moral hazards. The agent will have the opportunity to exaggerate the effort he is putting into his duties, causing excessive financial demands. Or, similarly, he reduces the time and effort he invests and delivers an inferior output, claiming it would be the best possible solution. Of course, all of this only works when the agent has no significant share in the outcome.

The world is full of principal-agent problems; they occur in business as well as in politics. But the agricultural administration certainly has its fair share of them too, particularly (again) in systems where the state interferes more strongly in farmers’ activities. They occur within administrative units, between different levels of the administration and between the administration and farmers. The following transcribed text sequence is chosen to illustrate this latter point.

The sequence is taken from an interview with a regional farm controller in Switzerland, a country with extremely strong (supportive) interference in farming. The interview had reached the issue of shortcomings in terms of controllability of direct payment programmes, specifically the payments for grassland-based milk and meat production (GMM). It quickly shifts to the Resource Efficiency Payments (REP) where farmers receive additional money if they register for no-tillage, use drop hoses or apply pesticides with a protective technology. Interviewer I2 is a part-time farmer himself and changes role over the course of the sequence.

  • C: We can discuss till doomsday. But this is not only the case for GMM. REP, REP, REP is actually much worse. No-tillage, that is actually much worse.

  • I1: Are you going outside and look at the soils?

  • C: Yes, yes, what do I see, what do I see now? Do I see whether the wheat, whether the wheat has been grown with mulch-till?

  • I2: A heap of rubbish. You have to register, you prepare, you say I am doing mulch-till, mulch-till, mulch-till. I have also this year, I registered for mulch-till, I grew leek for the first time, right? And now the leek has come later and later, until June 30 you had to register, so I said, what do I do, the leek is not inside yet, but I have registered mulch-till. If now the controller arrives, no matter what you say, he just has to believe me, full stop, doesn’t he?

  • C: Yes, and particularly, I generally have to believe if it is mulch-till. I do not see what has been done with the seed. So it is exactly the same at this point. And therefore I say, it is a, I think one should, one should control things which can be controlled, not only just believe, shouldn’t you? But it is difficult.

The controller’s intention seems to be to put the points being raised into a broader context. Resource Efficiency Payments are chosen to produce (probably) the worst possible example. The many repetitions catch the eye, a pattern that has been correlated with oral and unplanned discourse and with self-reference. The statement that REP is worse in terms of controllability than GMM is now specified with regard to the three bricks which make up REP. It is no-tillage rather than drop hoses or pesticide application which causes most of the pain.

Interviewer 1 takes up the emotional drive by switching into present tense, even though the controller will hardly go outside during the interview. In terms of content, however, Interviewer 1 ignores both the normative and emotional content of what has been said, restricting his focus to the control’s organisation. He suggests what a control could look like, and it is not entirely clear what purpose the controller’s “yes” actually serves. In any case, the controller subscribes to the image of him going outside now, applying the present tense himself. The core problem, the missing possibility to observe no-tillage on the farm, is transformed into a rhetorical question. It seems obvious enough that it is impossible to control mulch-till on the field, so it is not even necessary to put this into a statement.

This is where Interviewer 2’s story comes in, starting with an only-normative statement with which he affirms the controller’s attitude. The story then circles around the incompatibilities between the phasing of the application for REP and the production phases for leek. His point is that controllers would have no factual evidence to check the compliance with no-tillage.

When the interviewee speaks again, he affirms what has been said, even though he wants to make his own case. Although he introduces this with a “particularly”, the opposite would be more correct. This is not a special case in the general remark by Interviewer 2; rather, Interviewer 2’s story is a special case in the general concern of the controller. He now answers his rhetorical question, apparently doubting whether his underlying point was understood before. He then needs a few attempts to draw his general conclusion. The “I say” denotes subjectivity, whereas the “it is a” signals a high degree of objectivity. He then steps back from this in order to finally choose “I think”, carefully enough for the fact that his sentence that “one should control what can be controlled” should go largely undisputed.

Taken together, it is clear that the controller takes the role of the principal, complaining about the impossibility of controlling the farmer (the agent). Although this is, of course, an extreme example of information asymmetries and indicates that the agri-environmental programme was not well designed, asymmetries and resulting moral hazard issues are omnipresent and often mentioned in the agricultural press. Principal-agent theory seems to be a helpful tool to understand the dynamics of the agricultural administration.

2.1.4 New Public Management (NPM)

While Max Weber had emphasised the peculiarities of public administration, the NPM movement had the opposite motivation, connected with a strongly normative message. Public administrations would not have to be so distinct from profit-oriented enterprises, and the closer they became, the better. This was the core message of British Prime Minister Margaret Thatcher in the 1980s who wanted to make local administrations in particular more efficient. It was also subsequently the message of scholars such as Pollitt (1993) who showed ways of transferring management principles from private companies to public agencies.

Possible pathways to make public administration more efficient could be identified in many areas. One of them was the setting of incentives, where it was suggested that public employees be paid according to performance rather than given fixed wages; another was accountability. By applying performance standards and output controls, it should be possible first to obtain clarity about the different cost levels of an administration and finally to cut costs by discovering and removing inefficiencies.

Although it originated in Britain, NPM spread quickly, first within the English-speaking world, but soon to developing countries and continental Europe. In addition, international organisations such as the OECD have established working groups on NPM. The idea that strategies could be established to increase the efficiency of the “iron cage” has broadly attracted strong levels of support.

Not all attempts at applying NPM have been equally successful. Hubbard (1995), for example, shows that performance contracting for public services for agriculture had been attempted, but was too resource-demanding for administrative bodies so that it ultimately failed.

Finally, NPM is not much more than a rather general idea—administrations should work more like businesses—which can be translated into practice in very different ways. The agricultural administration has not been at the forefront of these attempts. Nevertheless, ideas to drive efficiency in the public sector have also influenced research concerning the agricultural administration, as we will see in the next section.

2.1.5 Production Economics

Traditional production economics goes back to Frederick Winslow Taylor (1856–1915) who was concerned with optimisation of production processes, leading to maximisation of outputs with given costs or minimisation of costs with constant outputs. It was not a far step from New Public Management to apply this principle to the public administration. While production in its strict sense would not happen in the administration, it had already been recognised that the costs of administering issues, a part of what economists called transaction costs, were no less important. Their systematic analysis was first carried out in the tax sector. Several scholars (Sandfort et al. 1989; Grüske 1991; Allers 1994; Raab 1995) focused on the costs required to collect one euro in taxes, finding that some tax categories caused far higher transaction costs than others.

Generally, there are two ways of estimating the costs of political programmes. After identifying all of the organisations involved, the direct method is to ask accountants in each organisation for their cost estimates. The indirect method is to make these estimates yourself by analysing organisational charts and the organisations’ budgets.

Again, only a small step was needed to transfer these questions and methods to the realm of agriculture and to develop them further. Like tax collection, all political instruments used to support farmers would necessarily entail a certain level of transaction costs. In a first wave of research inspired by the methodology of production economics, these costs were to be measured and explained. Among the findings of this phase were the following results:

  • When support programmes were cut, this did not necessarily cause lower administrative costs. During the time when EU export subsidies were radically reduced, the costs for their administration and control were still on the rise, due to tighter control activities (Mann 2002).

  • The nature of support programmes would strongly influence the level of transaction costs. Specific programmes to which farmers rarely subscribed caused higher transaction costs (on the administration’s side, but also on the farmers’ side) than general and broad payments (Rǿrstad et al. 2007). This finding was occasionally used to defend general market support as compared to more target-specific measures.

  • Another factor influencing the level of administrative costs was the administration’s organisational structure. Multiple levels of hierarchy between the policy-making unit and the unit handing out payments would increase transaction costs considerably (Mann 2001).

In the long run, however, it could not be sufficient simply to measure and explain different cost levels of different political instruments. Yes, some policies would cause higher transaction costs than others, but what would that imply? Might these “expensive” policies not be much more effective than policies with low levels of transaction costs?

This research is still in its absolute infancy, mostly due to the difficulties of defining a policy’s real impact in terms of success. Fährmann and Grajewski (2013) made a first attempt in this direction. They asked experts to estimate the impact of a series of different rural developments. And they measured the administrative costs of the same policies, allowing them to estimate correlations. Unfortunately, their results were somewhat ambiguous. Over the entire sample, they could not find any meaningful and significant relationship between the estimated impact and the cost level. Only in one of their regions (Hesse in Germany) was it possible to say that programmes with a high impact level caused higher administrative costs than programmes with a low impact level.

2.2 Commercial: Power in the Chain

Everybody knows that the administration works hierarchically and that our own relationship with the administration is based on a hierarchical structure. For economic transactions, the situation is different. When economists look at markets, they like to think of individually utility-maximising agents on an equal footing, at least in the classical models. Only recently have economists become increasingly open to the notion that power structures also exist in markets, and have devoted attention to the nature of such structures. The following section will highlight some examples of asymmetric market structures of relevance to agriculture, together with their causes and consequences.

2.2.1 Getting Started: Price Transmission

Based on the conventional microeconomic model world, the rational actor should transmit 100% of price changes. Imagine a dairy which buys milk for 40 cents per litre and bottles it, selling it for 50 cents per litre. As soon as the farmgate milk price drops to 30 cents per litre, the price per bottle will immediately drop to 40 cents, if a few simplifying assumptions (such as inelastic demand) apply.

Even without power asymmetries, this does not depict real-world conditions. In fact, many factors in the economy put price transmission rates well below 100%—and produce considerable time lags. One of them is distance. There is always a time lag between the first and the second price change, but Mengel and von Cramon-Taubadel (2014) show that 1000 km of distance within a country decrease the speed of price transmission by 6–20%.

But it is obvious that power relations may also have a major impact on the speed (and occurrence) of price transmission. Once producer prices for milk have fallen, our invented dairy will probably attempt to keep its selling price at 50 cents for as long as possible. A factor that could force the dairy to pass the farm price decrease on to consumers could be, for example, that a competing dairy has done so. Indeed, economists have shown theoretically (Weldegebriel 2004) and empirically (Muslim 2011) that oligopolistic structures in the chain slow down or even prevent full price transmission.

Vavra and Goodwin (2005) provide an example of a lagged and incomplete price transmission in Fig. 2.1 which can be applied to our milk and dairy example: the dairy in this illustration immediately starts to pass on the price increase, but cannot fully pass on the shock experienced at the farmgate level. Only gradually, with decreasing speed and ultimately incompletely, is the price increase passed on to consumers.

Fig. 2.1
figure 1

Illustration of an asymmetrical price transmission (Vavra and Goodwin 2005)

This example suggests a weak power position of the dairy as compared to the farms. The opposite would be much more typical. Agricultural economists largely agree that farming, particularly in small-structured systems, suffers from a structural disadvantage. Many farmers deal with a few fertiliser, pesticide and tractor producers on the one hand, and with a few slaughterhouses, mills and dairies on the other. Empirical evidence from all over the world indicates that lags and limitations in price transmission rarely work to the advantage of farmers (e.g. Balisacan et al. 2010; Gembreselassie 2012), nor to the advantage of the poorest groups in the world’s population which are in certain times hit hard by spiking world prices (e.g. Cudjoe et al. 2010).

This section, like the following sections, shows a different case of hierarchy than the type of hierarchy encountered around the agricultural administration. Between the administration and the farmer there is a legal or explicit hierarchy. If a public controller comes onto the farm, he may be smaller, weaker and less smart than the farmer. Nevertheless, he is in a superior hierarchical position, ultimately due to the state’s monopoly on power. This is different when the farmer and the dairy negotiate the milk price. They may be legally on equal terms. However, the dairy manager is in a much better position to reject the farmer’s price suggestion than vice versa. This should be termed an implicit hierarchy.

2.2.2 The Special Case of Land Grabbing

In most cases of major societal dispute such as GMOs or abortion, the opposing parties at least agree largely on a common terminology. In relation to large-scale land acquisition or land grabbing, this is not the case, and it is surprising that two discourses about the same subject can be so decoupled from each other.

Many economists generally support investment from richer nations in poorer countries, termed Foreign Direct Investment (FDI). ‘The contribution of FDI as key participant in economic growth has been widely acknowledged,’ wrote Mughal and Akram (2011). FDI is considered a key instrument for the modernisation and diversification of lagging economies. If wealthy and innovative businesses cannot fix the problem of poor environments, who should?

The last 20 years have seen unprecedented growth in FDI involving land. Mostly, investors have been major enterprises from industrialised countries, such as the Daewoo Logistics Corporation or the German Neumann Kaffee Group. In some instances, governments act themselves. The Chinese administration in particular has become active and, for example, has leased 2.8 million hectares in the Democratic Republic of Congo in order to manage the world’s largest oil palm plantation (Baxter 2010).

As soon as investments focus on land, FDIs change their name. They are called large-scale land acquisitions (LSLA) by their supporters, who can be found more in the realm of politics than among academics. African governments in particular often strongly encourage foreign investors to invest in land and produce cash crops on a large scale (Abbink 2011).

The group of opponents to what they call “land grabbing” is probably more numerous, or at least more vocal, than the supporters. While many academics have criticised the ways in which Northern enterprises work on Southern land, the centres of resistance are NGOs such as Oxfam or Bread for All, for which the struggle against land grabbing is a worthy source of donations. ‘The global rush for land is leaving people hungry,’ they argue (Oxfam 2017), promising to stand for the rights of expropriated smallholders in the affected countries.

Well, what is the problem? How could FDI, as soon as land was involved, turn into such a contested issue? Tools to develop an answer to this question certainly have much more to do with the asymmetries of hierarchies than with market transactions. In most cases, we have traditional smallholder systems on one side, often dominated by slash-and-burn agriculture with very low productivity. On the other side, modern agronomic systems with the optimised use of contemporary farm technology are to be implemented, making ample use of scarce water resources and pesticides. The managers in charge of the Northern companies and local smallholders are an odd group of competitors for farmland.

In fact, one could argue that many of the “land grabbing” cases qualify as the most radical land use changes in history. Over the course of human development, land use changes have tended to come gradually and slowly, be it the change from three-field crop rotation to continuous arable farming, or from pastoralism to more intensive grassland management. The most revolutionary example of land use change was probably the collectivisation of Soviet land under Stalin, but even there the modes of production changed only slowly, despite a radically new mode of ownership. For most LSLA projects, however, everything changes, mostly from one year to another: ownership goes into the hands of a major enterprise, the portfolio changes from diversified to specialised and often from staple crops to cash crops, and the degree of intensity multiplies.

This is another classic example of an implicit hierarchy. It becomes clear that the grave power asymmetries between the actors involved are a large part of the problem. If a peasant in Sierra Leone and a Chinese company with a massive turnover compete for land, this is not a real competition. Even acknowledging the positive effects of FDI also in agriculture—particularly boosted productivity—it is probably a good thing that the public closely watches the conditions under which the land transfer is taking place.

The devil lies in the detail. The Coca-Cola Company, for example, attracted attention by announcing that it would not accept sugar deliveries from land being taken from smallholders. ‘The Coca-Cola Company believes that land grabbing is unacceptable’ (Tran 2013). However, reports issued to demonstrate that all goods used for Coke production are unrelated to land grabbing raised criticism from the NGO side as being ‘too superficial’ (Dawson 2015).

That leads to the necessity to establish broadly accepted and credible institutions which define acceptable and unacceptable ways of agricultural production, for FDI and beyond. This aspect will be taken up later (Sect. 4.3).

A final anecdote may clarify the relationship between land grabbing and hierarchies. The Swiss enterprise Addax Bioenergy invested in 30,000 ha of sugar cane and an ethanol plant in a poor and remote area of Sierra Leone. A teacher in one of the affected villages was asked about his position towards this investment. He conceded many positive effects, but then complained about the pitiful state of a pedestrian bridge leading to his village: ‘Addax should definitely do something about it.’

Usually, it is the local administration which is responsible for the maintenance of local infrastructure. However, there are areas in which these institutions are extremely weak or non-existent. A billion-dollar company from abroad can, under such circumstances, quickly come into the role which, under normal circumstances, would be taken by public authorities. This implies that de facto hierarchies between locals and this company become extremely similar to the hierarchy between locals and a functioning administration.

2.2.3 Vertical Integration

Horst Bühler, a meat packaging enterprise in Southern Germany, is looking for organic turkeys. But it’s not done to call them to sell a few hundred on the spot. Horst Bühler only buys turkeys on long-term contracts. These contracts run for five years if you are building a house for the birds, and three years otherwise. And they contain more details than one would expect. This starts with the birds themselves, which have to be bought from one particular breeder. And it continues with the feedstuffs. Farmers have to buy five ingredients sold by two mills and to feed them in a pre-defined formula. Only just before delivery are they allowed to add their own cereals to the feedstuff that comes at a uniform price negotiated between Bühler and the mills. After 21 weeks, the turkeys are collected by Bühler.

By now, it will be clear why this paragraph has been placed in the “hierarchy” section. The farmers delivering to Bühler receive good prices, they have long-term security for their product marketing and they produce good quality. But they have to submit totally to regulations developed by others. In the life of a turkey producer in this setting, there is not much entrepreneurial freedom left. Examining the case of German pork production, Schulze and Spiller (2006) observe that ‘vertical integration represents hierarchical governance mechanisms’.

However, the more that farmers become part of business structures where they largely follow production rules—including which breeds to rear and which feedstuffs to use—the less they are self-reliant subjects, and the more they become objects driven by their environment, a development illustrated by Finan (2007) and Tuong (2009). Therefore, it may be worthwhile to simultaneously analyse the interdependencies between the two movements: one from markets towards hierarchy, and one from subject to object.

Figure 2.2 extends the theoretical framework of Chap. 1 by adding the dimension of subject-object perceptions. Economists usually prefer to envisage individuals as subjects with a clear preference structure which they aim to cover. Sociologists tend much more to emphasise the position of individuals as results of their culture and environment. Socioeconomics could be a discipline suitable for the combination of both perspectives. And the vector in Fig. 2.2 uses the case of vertical integration to demonstrate the changing position of farmers in the business world.

Fig. 2.2
figure 2

A model of vertical integration in agriculture

It would now be useful to draw our attention to the advantages of vertical integration, taking into account that both Horst Bühler and its poultry producers entered voluntarily into this arrangement. Fan et al. (2014) mention some central arguments, including:

  • Information asymmetries between participants

  • Agency problems inducing opportunistic behaviour

  • Dysfunctional institutions and market forces preventing contractual arrangements.

It is not always straightforward to apply such general findings of institutional economists to the context of agriculture. Sometimes, arguments are applied somewhat arbitrarily. When Klein et al. (1978) write about contractual arrangements concerning farmland, they call agricultural land ‘a highly specific asset’ (p. 320), while Allen and Lueck (2003), on the same issue, argue that ‘Landowners bring just one asset to the exchange: land—an asset that typically is not specific to the exchange’ (p. 36). In both cases, the classification was crucial to explain their respective empirical results, i.e. to bring them into accordance with institutional economic teachings. The fact that they used contradicting premises, however, shows that these teachings are probably yet not as consolidated as they should be.

A study by Dries and Swinnen (2004) links the issue of vertical integration with that of FDI, using the case of Polish dairies. After the fall of socialism in Poland, industries in the country were either bought by Western enterprises or kept by local competitors which, however, attempted to adapt to technologies and organisational structures introduced by their new competitors.

Poland’s agriculture arguably has the smallest structures of all major European countries. And modern dairy industries are not too helpful as long as smallholders cannot produce milk of sufficient quality. Therefore, many dairy companies offered assistance programmes to delivering farmers. And once foreign companies started offering feed supply programmes, trade credit and investment assistance programmes, domestic companies soon followed. The two Belgian researchers were able to show that both farmers and dairy companies were more successful if such elements of vertical integration were used to make Polish milk production more competitive.

2.3 Private: Powerful Families

Family farming is the dominant form of today’s agriculture. One can argue about what exactly can still be counted as a family farm, but it cannot be argued that the vast majority of today’s 570 million farms are family farms. Lowder et al. (2016) estimate that 75% of the land is farmed by family farms. And behind each family farm there is, of course, a farming family.

Two justifications can be found for the choice to group families in the “hierarchy” section, although family life also contains elements of cooperation and markets (as will be shown soon). The first of them is historical.

The first publications that today could be termed under the sociology of families appeared well before the discipline of sociology was consciously established. Nave-Herz (2013) beautifully describes these first attempts, being motivated by the sorrow for preserving this social institution, and depicting the concept of a clear hierarchical structure as an ideal solution.

The dawn of the 20th century saw the rise of emancipatory ideas regarding gender. The call for cooperative management of marriages became increasingly impossible to ignore. On the inter-generational level, the late 1960s then saw the rise of anti-authoritarian educational approaches. The idea of the entire family as an organisation of cooperation was born.

In 1981, the economist Gary S. Becker opened another perspective. Could family decisions not be portrayed as market decisions? One important example given by Becker was the marriage market; another was the demands of children. However, the explanatory power of pure individual utility-maximisation in family decisions remains limited: not only did Becker face criticism for his emphasis on economic reasoning (e.g. Granovetter 1985), he decided himself to devote a chapter of his Treatise to altruism in the family. For an open mind such as Becker, it was easy to see that individual utility-maximisation on the market could never tell the full story of founding (and living in) a family.

Not only are hierarchies the oldest interaction mechanism under which the family was viewed: a stronger argument to subsume the family in the “hierarchy” section is the fact that the agricultural family is always a family defining a hierarchical business.

Family businesses are a unique and rich research field because they link the complex structures of businesses with the complex structure of a family. The boundaries can rarely be defined: ‘Consider the case of a Canadian prairie farm woman who drives 40 min each way, across the large expanse of an ever-growing and ever more industrialized family farm, to deliver meals to the field for farm workers. Is this domestic work or farm work? […] On family farms, there is often little separation between “waged” and “unwaged” labor.’ (Fletcher and Kubik 2017: 3).

While a family farm may be incredibly multifaceted, it is based on two different dimensions: one is the relationship between the farming couple (and although “queer” farm couples are not unheard of, it is still a fairly good proxy to talk of inter-gender relations), and the other is the relationship between generations.

2.3.1 Inter-gender Relationships

Few terms are valued so differently between the sexes as “traditional family farming”. For many men (e.g. Jager 2004), traditional family farming is a precious heritage that should be maintained. For many women (e.g. Bektasoglu 2012), traditional family farming is an oppressive and unjust division of rights and labour between men and women.

One does not have to be a gender expert to understand these differences. Even a superficial look at the literature is sufficient. In a study about Sub-Saharan Africa, Puppin-Lerch (2007: 25) finds that:

Women played an important role in agricultural production and the following market trade. Women ploughed, planted, weeded, and harvested the field; transported their products from the field to the village; and sometimes marketed the farm products. Nevertheless, although farmers were mostly women, men were the owners of the land. They also owned the cattle, a major source of wealth and power.

This short paragraph shows two important characteristics for traditional inter-gender relations in farming. One is clear power asymmetries: men are usually the owners of most assets, even if most of the work is done by women. The impacts of many millennia of male domination are today, in a time that strives for fair inter-gender relations, most visible in farming as the most traditional economic sector. In fact, the FAO (2013) estimates that the amount of land owned by women is still below 10%, as is the volume of extension services from which women benefit.

The second pattern is the rather fixed and inflexible division of work between the genders. Such a fixed and defined distribution does of course save transaction costs. However, the shape taken by this division of labour varies greatly between cultures:

  • In many developed countries, women tend to work off-farm and men on-farm. This is, for example, what Muenstermann (2010) reports from Australia.

  • Higgins’ and Fenrich’s (2011) observation that men tend to be responsible for cash crops while women produce staple crops also applies for a number of other Southern hemisphere countries.

  • In many pastoralist systems, women are responsible for milking the cows, even if men are in charge of milking other animals (Niamir-Fuller 1994).

At this point, it seems worthwhile to leave the practice of family farming briefly in order to raise a sociological concept, namely that of social construction. Berger and Luckmann (1966) suggest that reality is always a constructed reality. Certain persons, certain characteristics and certain objects are meant to play a certain role. If we see a person in a green uniform and with a gun, we will quickly construe this person in our minds as a soldier. Our ideas about his role in society will go far beyond his green clothing and his weapon. Berger and Luckmann, in such cases, would opt for deconstruction. Especially if the roles we were ascribing would cause unhappiness, it is beneficial to broaden the possibilities of roles and behaviour in society.

In a similar way to the soldier example, most of us ascribe roles to male peasants or farmwomen. Williams (1989) was among the first to suggest that gender should also be deconstructed. In rural societies there were usually fixed patterns about the role to be taken by women. These patterns had the advantage of lowering transaction costs. If it was clear that women would do the milking and men the ploughing, then this division would not have to be negotiated in evolving partnerships. However, the shortcomings of such patterns are also obvious: they are usually not well adapted to individual preferences. There may be numerous cases in which women milk and men plough, although both would be happier if men were to milk and women were to plough.

From this perspective, Rossier (2004) portrays seven Swiss farm couples. She finds cases where man and woman are stuck in traditional roles which make them unhappy. But she also finds cases where couples manage, going beyond traditional roles, to find divisions of labour which are well adapted to individual needs and interests. Which do not necessarily imply that both persons are involved in farming at all.

However, this “solution” of deconstruction may be unduly idealistic. If men have the power in the system, what should motivate them to let it go? Thus, some rural sociologists (e.g. Allen 2007) argue that the process of enabling farmwomen and appreciating their work will necessarily entail conflict.

Is agriculture, after all, becoming more male or more female over time? This discussion was initiated in 1978 by a Romanian man (Cernea 1978) who argued that women would play an ever-increasing role in the farming sector and that a “feminisation of agriculture” was underway. In the decades to follow, this discussion was continued with some enthusiasm. While it has been shown that women farm differently from men (farms led by women are usually smaller and more often organic), however, it has not been effectively shown that such feminisation would occur on the global farming scale. Tendencies go in both directions.

2.3.2 Inter-generation Relationships

At the beginning of this chapter, the relationships between parents and young children were used as the prototype for hierarchical relationships. But to what extent do these parent-child relationships impact the farming sector as a whole?

It is usual for the manager of a family farm to retire and sell or rent his farm to somebody from the neighbourhood or a different part of the world. Such inter-family successions are fairly frequent in the New World compared to more traditional European systems, and also in certain segments such as periurban horticultural businesses (Bertoni and Cavicchioli 2016). However, on a global scale, it is much more usual for farms to be handed over within the family, within the very hierarchical relationships between parent and child.

Economists do not usually deal with parent-child relationships. Nevertheless, the 1990s saw an emerging interest among agricultural economists in the process of structural change. In developed countries it was clear that the number of farms had been declining for decades. Germany, for example, has seen its number of farms shrink from more than one million in 1950 to less than 300,000 in 2016. The turn of the century brought a large number of publications that econometrically explained under which circumstances this process of decline would be speeded up, and under which circumstances the structure would remain stable. This wave of research (for an overview see Mann 2003) generated the following main results:

  • The older the farm manager, the more likely it is that a farm will be abandoned.

  • The larger a farm, the less likely it is that a farm will be abandoned.

  • Part-time farms are more likely to be given up than full-time farms.

  • Direct payments decrease the probability of a farm being given up.

  • The same can be said about higher prices farmers receive for food.

  • A higher wage level, however, increases the decline in farm numbers.

Generally, economists like to show that people behave in accordance with rationality, and they were able to do this in the case of structural change. Certainly, if farmers could earn more, with more fields and better monetary conditions, they would be more likely to keep the farm. As soon as opportunities outside agriculture became available and attractive, however, the likelihood of abandoning the farm rose.

But what about age, a variable that always proves to be highly significant if included in the studies? The obvious explanation—the older the farmer, the more likely he is to close the farm—is somewhat simplistic. If farms are abandoned, it would be untypical, at least in most countries, for a person to switch from being a farmer to being a driver or a doctor. In fact, a Swiss farm programme providing funds for such re-education had to be closed because only a handful of farmers had subscribed in all the years of its existence. The typical person abandoning his farm is 60–70 years old and enters retirement rather than a new job. And the farm will usually not be abandoned if there is a son (or perhaps a daughter) who is willing to take it over.

This completes our mental journey from inter-generational relations towards economists’ concern about structural change in agriculture. In essence, structural change in agriculture is a story about successful or failed farm successions. And these successions usually occur between the different generations on a farm. In order to illustrate this system, it may be useful to enter the world of theoretical modelling. While this requires a degree of abstraction, it may clarify the very relationship between farm succession and structural change.

Let us first focus on determinants of the personal decision to take over a farm. In line with Rosen’s model (1986), we assume two kinds of jobs to choose between:

$$ {\text{u}}_{\text{ia}} = {\text{W}}_{\text{ia}} + {\text{n}}_{\text{i}} $$
$$ {\text{u}}_{\text{ib}} = {\text{W}}_{\text{ib}} + {\text{n}}_{\text{ib}} $$

The agricultural job (set equal with taking over a farm) a and the non-agricultural job b; both have two utility components, a monetary welfare measure w that mirrors the amount of money as earned income and a non-monetary utility component n. The non-monetary utility components of farming have been described extensively (Bahner 1995).

It is reasonable to assume that potential farm successors are only a finite number of people M. For this model, M may, for example, be assumed to consist of farmers’ children. A broader definition of M would include every school graduate who would prefer to work outdoors.

The decisive factors in M’s occupational choice are now the differentials, rather in expected wage Wie than in real wage between agricultural (a) and non-agricultural (b) occupations

$$ \Delta {\text{W}}_{\text{ie}} = {\text{W}}_{\text{iae}} - {\text{W}}_{\text{ibe}} $$

and in expected non-monetary utility components

$$ \Delta {\text{n}}_{\text{ie}} = {\text{n}}_{\text{iae}} - {\text{n}}_{\text{ibe}} , $$

so that it is possible to work out the expected difference in utility Δuie between the two occupational choices

$$ \Delta {\text{u}}_{\text{ie}} = \Delta {\text{W}}_{\text{ie}} + \Delta {\text{n}}_{\text{ie}} $$

as a result.

Graduates will only choose to enter farming (D = 1) if that is what maximises their expected utility. Otherwise, they will choose the non-agricultural occupation D = 0. Consequently, choices are wholly covered by the rule:

$$ {\text{Choose D}} = 1{\text{ or D}} = 0 \, \,{\text{as}}\, \, \Delta \,{\text{u}}_{\text{ie}} \gtrless 0 $$

Ties (Δuie = 0) are broken by random device, such as flipping a coin.

Given the size of M choosing between D = 1 and D = 0, relative market supply conditions are completely characterised by calculating the number for whom Δuie > 0 and the number for whom Δuie < 0. It is convenient to describe differences in preferences among M parametrically for analysis. Define g(Δuie) as the density (in the sense of a probability density function) of expectations in the population of M making choices and define G(uie) as the cumulated density. Then, the fraction of M who choose D = 1 must be

$$ {\text{M}}_{1}^{\text{s}} = \int\limits_{0}^{\infty } {{\text{g(}}\Delta {\text{u}}_{\text{ie}} ){\text{du = 1}} - {\text{G(0)}}} $$

The remaining fraction of M chooses not to enter farming. These are persons for whom. Δuie < 0, so

$$ {\text{M}}_{0}^{\text{s}} = \int\limits_{ - \infty }^{0} {{\text{g(}}\Delta {\text{u}}_{\text{ie}} ){\text{du = G(0)}}} $$

Figure 2.3 illustrates Eqs. (2.6) and (2.7) for a given distribution of Δuie. Relative supply to D = 1 farm successors is the area under g(Δuie) to the right of 0—this is Eq. (2.6). Relative supply to D = 0 is the area to the left of 0—this is Eq. (2.7). E shows the conditional expectations for the whole group of M as well as for \( {\text{M}}_{0}^{\text{s}} \) and \( {\text{M}}_{1}^{\text{s}} \).

Fig. 2.3
figure 3

The choice of entering farming

Finally, the share s of M that engages in farming is defined as

$$ {\text{s = M}}_{1}^{\text{s}} /{\text{M}} . $$

Our theoretical considerations in this model lead to the first hypothesis that the expected difference in utility between an agricultural career and a non-agricultural career influences the decision between farm succession and an alternative career.

In order to draw clear conclusions from the patterns of occupational choices to the patterns of structural change, it is convenient to come up with two additional simplifying assumptions.

The first assumption is that the period of being the farmer in charge on a farm is given as t years and does not vary over time. t is assumed to be identical for all farmers. The second assumption is that no exit from the farm household is possible before year t once the decision to take over (D = 1) has been made. Both assumptions do largely match the empirical results for family farming, particularly full-time family farms, which will be presented in Sect. 2.4. The second assumption can theoretically be explained by the prohibitive level of sunk costs because of investments in education and experience that cannot be regained when leaving the farm.

From here, the number of farms in a given area can be estimated as

$$ {\text{F = }}\sum\limits_{j - 1}^{t} {({\text{s}}_{\text{j}} * {\text{M}}_{\text{j}} ),} $$

in which j = 1 describes the past year, j = t the year after which farmers are going to retire. The rate of structural change in agriculture is on the whole primarily described by the annual rate of variation in farm numbers ΔF/F. This rate can be quantified as

$$ \Delta {\text{F/F = (s}}_{0} * {\text{M}}_{0} - {\text{s}}_{\text{t}} * {\text{M}}_{\text{t}} )/\sum\limits_{j - 1}^{t} {sj * Mj} , $$

That leaves two causes of structural change. The first is that M0 ≠ Mt, i.e. that the number of persons eligible to take over a farm has changed over the years. Consider farm successors as constituting M. A past decline in the number of farms then decreases M0 compared to Mt. That makes structural change a self-accelerating process. For a broader definition of M, the demographic decline in the birth rate that was experienced in most of the industrialised world led to M0 < Mt. Structural change in agriculture should therefore be considered in the context of past sociodemographic trends.

The second constituting component for structural change is the size of s. It is therefore worthwhile to specify Eq. (2.10) by inserting Eqs. (2.8) and (2.6).

$$ {\Delta }{\text{F/F}} = \left( {\int\limits_{0}^{\infty } {{\text{g(}}{\Delta }{\text{u}}_{{{\text{ie0}}}} ){\text{du}}} /\int\limits_{0}^{\infty } {{\text{g(}}{\Delta }{\text{u}}_{{{\text{iet}}}} ){\text{du}}} } \right)/\sum\limits_{{j - 1}}^{t} {sj*Mj} $$

For the current situation, the distribution of the once expected utility of retiring farmers may be assumed as given. t is also assumed as a constant. Figure 2.4 therefore illustrates the rate of structural change as a function of E(Δuie) in year j = 0. It shows how rational expectations connected with an agricultural career, weighed against rational expectations connected with a non-agricultural career, influence structural change. To give an extreme example: imagine that the expected utility of farming in the current year is so low that nobody enters farming.

Under the assumptions of the model, the maximum rate of farm decline would be restricted to

$$ \Delta {\text{F/F}}_{\hbox{min} } = - {\text{s}}_{\text{t}} * {\text{M}}_{\text{t}} /\sum\nolimits_{j - 1}^{t} {sj * Mj} $$

Equation 2.12 may be visualised with help of figures. Given that farmers have a period of being in charge on a farm for t = 30 years, and given that, in past years, exits from and entries to farming have been constant from year to year, the maximum decline in farm numbers in the current year would be 3.3%.

Point A in Fig. 2.4 depicts a situation in which \( {\text{s}}_{0} * {\text{M}}_{0} = {\text{s}}_{\text{t}} * {\text{M}}_{\text{t}}\), where the number of entries equals the number of exits t years ago, so that the annual rate of structural change is zero. Point B mirrors a situation that is more typical for Western societies. The expected utility of taking over a farm is low, thus not all farms do find a successor. This leads to a decline in the number of farms. Corrado et al. (2017), for example, point to the fact that, between 1990 and 2010, the average farm size in Italy rose from 5.6 to 8 ha, while the number of holdings declined from 2.7 million to 1.6 million. This is a very typical example for industrialised countries today. Point C shows the opposite situation that is typical for some developing countries (Mandal 2000) and for many periods in mediaeval times (Abel 1962). The expected opportunity costs of farming are so low that the number of entrants exceeds the number of exiting farmers, therefore the number of farms increases and the size of the average holding decreases.

Fig. 2.4
figure 4

Rational expectations and structural change

It is widely believed that exogenous changes influence occupational choices. The impact of economic changes on structural change can therefore be seen as an indirect connection. Figure 2.4 shows a situation in which agricultural policy conditions change in a favourable way, be it through introduction of direct payments or through an administered increase in food prices. This increases the mean of Δuie, so that B is shifted towards B’. However, an increase in opportunity costs, for example through an increase in non-agricultural wages or a reduction in unemployment, may again decrease Δuie and shift the equilibrium back to B. Thus, the speed of negative structural change increases again, as fewer graduates choose a farming career.

It is possible to verify this model empirically. In times when agriculture does better than other sectors, a larger proportion of young people enter an agricultural education. And the more young people enter such education, the more farms can (and will) be taken over a few years later.

While this is how economic rationality plays into inter-generational relations, nobody would claim that rationality is all there is in inter-generational relations. It is obvious that culture and values play strongly into this issue, both from the older and the younger generation’s side. The latter will be explored in more depth in the next section. For the moment, some words about the perspective of the old farming generation about to retire should suffice.

Psychologists have often described the desire, once life is approaching its end, to leave something behind (e.g. Cooper et al. 2009). Yes, everybody’s stay on this planet comes to an end. But couldn’t I leave something behind that lasts? To just participate a tiny bit in eternity on earth?

For farmers, it is likely that this “something”, in the ideal case, is a well-organised, profitable and sound farm. Economically, retired farmers would usually be best off if they sold their land to the neighbours, providing a nice additional income. Empirical results, however, show that preferences of retiring farmers usually lie elsewhere:

  • Farm succession often has a lot to do with honour. If it is possible to hand over the farm to the next generation, this is usually an act of joy and pride, even if it happens outside the family (Mann 2007).

  • It is even possible to economically trace preparations for a successful succession to the next generation in the family-farm life-cycle. Mann et al. (2013) show that, in the years before retirement, farms that are going to be transferred experience a boom in investment activity. In farms without succession, however, this is the time when disinvestment already begins.

These are some of the few common patterns of farm succession and other inter-generational issues. Others are much more dependent on the respective cultural norms and, even in a single macro-region such as Central Europe, they can strongly diverge. Consider the question of where the retired farming couple would live after succession. In an identical survey carried out in Switzerland and Northern Germany (Mann and Rossier 2007), 82% of Swiss respondents stated they would continue to live on the farm. 76% of German respondents, however, stated they would move away.

2.4 Concluding Thoughts on Hierarchy

The public administration is a convenient case to become familiar with the structure of hierarchies. Max Weber’s “iron cage” is a powerful image to illustrate the unconditionality of hierarchies: if you want to stay in the system, you have to obey, no matter what!

Research in the 100 years since Weber’s death, however, has contributed to softening the iron cage by asking naughty questions. Would the organisational units really need the expanding budget they claimed to need? Were they able to control what they claimed to control? Could the organisational structures be adapted to organisational patterns in businesses? And could the costs the administration was causing be justified?

Businesses dealing with each other are already a lecture in “hierarchies for the advanced”. Economic models start to get complicated as soon as power asymmetries are to be considered. However, power asymmetries in the chain are the rule rather than the exception in the economy. Or have you ever wondered why your insurance puts you on hold when you call them, though you wouldn’t do that to them when they call you, let alone why they never actually call you?

Finally, hierarchies in the family will be all too “familiar” to most of us. However, these hierarchies are extremely dynamic. Apparently, we should be kind to our kids in family businesses, because later on today’s small pests will be responsible for the very fate of the business.

By now, readers may have formulated a naughty question of their own: what does all of this have to do with agriculture? More than with, for instance, the educational administration, the health sector or families running a taxi business? Well, many findings of this section can be transposed to other sectors. Agriculture is just a worldwide melting pot with an extremely long tradition that has collected many, and significant, cultural habits. And as the food trade is arguably the most essential backbone of every economy, the farming sector serves as an ideal case in point for the significance of socioeconomics.