Association for Public Policy Analysis & Management

Small family farms face numerous challenges due to market failures. Small-scale production increases transaction costs in all factors of production other than family labor. The quantities produced individually reduce their bargaining power and do not meet the growing needs of large-scale retailers, and their access to new technology is limited by its high costs. The combination of all these factors translates into low productivity rates and reduce their ability to join developed markets. In Colombia—the largest supplier of coca leaf in the world—70 percent of agricultural units are small. However, there is limited understandings about the link between agricultural productivity and coca crop cultivation. Using a random sample of 440 agricultural units, we estimated a production function and total factor productivity of agricultural units located in South Bolivar and Northeast regions of Colombia. Our results suggest that agricultural units with low productivity rates are more likely to grow coca crops. Therefore, programs to improve agricultural productivity should complement the strategies used to control illicit crops.