1

Technological change, institutional development and economic growth in Dutch Agriculture, 1870-1939 J.P. Smits/ Groningen Growth and Development Centre/ N.W. Posthumus Instituut

1. Introduction

It is remarkable to see how strongly a small, urbanised country such as the Netherlands has

specialised in agricultural production. Table 1 gives a clear impression of the competitive strength

of this sector in the late twentieth century.

Table 1: Share of Dutch products in world trade in 1986 (in %)

Flowers 63,9 Eggs 61,1 Pigs 56,6 Bulbs 56,4 Milk 53,1 Cocoa powder 48,6 Tomatoes 43,4 Natural gas 40,1 Potatoes 35,5 Cocoa butter 32,4 Pigs meat 31,8 Artificial fertilisers 31,8 Unprocessed alkyds 31,3 Light bulbs 30,6 A cyclical carbon hydrates 30,3

Source: Jacobs et al (1990) p29.

In this list, which consists of the fifteen most important export products in 1986, eight are of

agricultural origin and one (artificial fertilisers) is closely related. But even more striking is the

large share of these products in world trade. This begs the question how it is possible that such a

small, densely populated country, has specialised so strongly in agricultural products.

From the late Middle Ages onwards agriculture has played an important role in the

economic development of the Netherlands. Already at an early stage this sector became strongly

commercialised and export-oriented. The roots of this specialisation model can be found in the

early modern period, when levels of productivity in farming were increasing and the agricultural

sector got strongly commercialised. In his seminal work The Rural Dutch Economy in the Golden

Age, Jan de Vries explains this modernisation of agriculture in terms of a deliberate process of

specialisation (De Vries 1974). Van Zanden has criticised this view, indicating that an incidental

exogenous factor forced farmers into more productive, commercialised agricultural activities

IEHC 2006 Helsinki Session 60

2

(Van Zanden 1988). According to him a change in the North Sea level made agricultural land in

the western part of the country -traditionally a region with arable production- less suitable for the

production of grains and other arable products. This “ecological disaster” had far-reaching

consequences which were not confined to the agricultural sector.

First of all, the change in the quality of agricultural land induced a structural shift from

the rather labour-intensive arable output to the more capital-intensive livestock production. But

even more important, due to this change in the composition of agricultural output, the economy of

Holland was forced to import huge quantities of grains in order to feed the ever growing urban

population.1 This import of grains from the Baltic is often referred to as the “moeder negotie”

(mother trade), as this trade activity marked the beginning of exports of industrial goods (in order

to pay for these imports) and also stimulated the growth of the transport sector and financial

services. Some authors even claim that the grain trade was the main pillar on which the

Amsterdam Staplemarket, which was to become one of the main important centres in

international trade in pre-modern times, was built. The changes that the agricultural sector in the

early modern period went through –i.e. the shift to livestock production as well as the

commercialisation of production- were mainly driven by an (ecologically induced?) change in the

supply of land.

However, this strong position on international markets has not been a constant

phenomenon over time. Of course, Dutch agriculture has been faced with changing market

conditions as well as technological opportunities to which it had to respond. This paper raises the

question which strategies farmers employed to increase their income and/or competitiveness in

the period 1870-1939. Special attention will be paid to the way in which they responded to

external shocks, such as relative price changes.

In this paper a long-run perspective of Dutch agricultural development is given. Section

two gives provides an overview of the strengths and weaknesses of the agricultural sector over

time on the basis of data derived from the Dutch Historical National Accounts. After having

described the main stylised facts of agricultural growth -among others using a growth accounting

framework-, section three will focus on two inputs which are more-or-less exogenous in the neo-

classical growth model, i.e. technological change and institutional development.

1 For additional information on the high levels of urbanisation in the low countries during the early modern

3

2. The Quantitative Development of Dutch Agriculture

Data on the long-run performance of agriculture can be derived from the Dutch Historical

National Accounts. For the period 1800-1913 the estimation procedures are presented by Smits,

Horlings and Van Zanden (Smits et et al 2000). The agricultural series are based on detailed data

derived from several agricultural surveys, which give information on the volume of output for

arable and livestock products, as well as data on prices.2 The estimates for the period 1800-1913

were subsequently linked to the official data of Statistics Netherlands. The long-term estimates of

national income and its components, covering almost two centuries, are published by Van der Bie

and Smits (Van der Bie and Smits 2000).

Already in the introduction it was stated that Dutch agriculture witnessed quite strong

productivity advances before 1800. As a result of this early modernisation process, agriculture

only made a modest contribution to Dutch GDP in the early nineteenth century.

Table 2: Share of agriculture in GDP and total employment, 1807-1939 (in %)

%GDP %Empl 1807 26 43 1870 29 38 1913 15 30 1939 10 15-20

Source: Van der Bie and Smits (2000)

Compared to other European countries, an agricultural share in GDP of one-quarter in the early

nineteenth century is very small. This share is also exceptionally small when compared to the

larger share of agriculture in total employment. After a mild increase of agriculture’s share in

GDP until 1870, this percentage steadily drops to a mere 10% in 1939. The contribution of the

agricultural sector to total employment shows the same declining trend, from a level of 43% in

1807 to 15-20% on the eve of World War II.

period, see De Vries (1984). 2 For a short survey on the methods of calculation, and the adjustment of the Knibbe data, see Smits et al (2000). This monograph is also downloadable from the website of the Groningen Growth and Development

4

Graph 1: Real agricultural value added, 1807-1939 (in millions of guilders, constant 1913

prices)

0

100

200

300

400

500

600

700

800

1800

1804

1808

1812

1816

1820

1824

1828

1832

1836

1840

1844

1848

1852

1856

1860

1864

1868

1872

1876

1880

1884

1888

1892

1896

1900

1904

1908

1912

1916

1920

1924

1928

1932

1936

Throughout the period 1807-1939 the agricultural sector witnessed a sustained growth. After the

initial catching-up growth after the Napoleonic Wars, agricultural production increases at an

average annual growth rate of ca. 0,7% in the period 1850-1913. During the interwar period a

clear acceleration of growth can be noticed. In the years 190-1938 agricultural production

increased with 2,0% a year on average. This growth acceleration was accompanied by important

structural changes, i.e. a shift from low- to high productivity types of production.

Table 3: Share of different agricultural activities in total agricultural output, 1807-1939 (in %)

%arable %livestock %horticulture

1807 55 43 2 1870 46 51 3 1913 30 62 8 1939 23 61 15

Source: Smits et al (2000) and Knibbe (1993)

Centre: www.ggdc.net.

5

In the period 1807-1913 a clear shift from arable output to livestock production can be noticed. In

the interwar years the share of horticulture increased substantially.

Table 4 displays the results of a neo-classical decomposition of growth on the basis of a growth

accounting exercise. All calculations are based on data derived from the Dutch historical national

accounts.

Table 4: Growth accounting agriculture, 1815-1996 (in %)

Output Labour Capital TFP Lab.Prodt 1815-1850 1,0 0,9 3,0 -0,9 0,1 1850-1880 0,6 0,6 1,9 -0,7 0,1 1880-1910 0,8 0,6 1,3 0,0 0,2 1910-1938 2,0 0,0 * 0,9 1,9 1938-1970 2,0 -2,3 * 1,7 4,3 1970-1996 3,5 -1,8 * 5,3 5,6 Source: For the period 1815-1910 see Smits et al (2000). For later years, see Knibbe (1999).

This growth accounting exercise shows that output growth was not driven by a more efficient use

of labour. Labour productivity hardly increased during the long nineteenth century, while TFP

even showed some decline. However, technological progress was realised by raising land

productivity. The average yields of arable products witnessed an increase of 67% in the period

1850-1913. The strategy to invest in raising levels of land- rather than labour productivity, seems

to be a long-run characteristic of Dutch agriculture.

During the twentieth century agricultural output growth rates doubled in comparison with

the preceding period, whereas the volume of labour decreased. Labour productivity expanded

considerably because of strong increases in both capital intensity and TFP until 1970. From the

1970s onwards a new growth phase started, in which agricultural growth was almost exclusively

driven by TFP. In this period technological development was of a labour- as well as a capital-

saving nature.

The growth accounts indicate that especially during the nineteenth century labour

productivity hardly increased. It seems that technological change was mainly land-saving. This

should not come as a surprise as the Netherlands is a small and densely populated country were

agricultural land is a scarce good.

6

Table 5: Total area of agricultural land in 000 ha, 1830-1939 (in %)

total arable grass horticulture 1830 1866 40,6% 58,0% 1,4% 1875 1996 42,8% 55,9% 1,3% 1939 2335 39,1% 58,5% 2,4%

Source: Van der Bie and Smits (2001)

Table 5 shows that the increase in the volume of land was quite modest. However, land

productivity increased with almost 75% in the period 1830-1875 and this growth figure was close

to 90% in the period 1875-1939. The increasingly efficient use of land can be seen as an

important source of growth. Section 3 explores the institutional and technological determinants of

this productivity expansion.

3. Technological Change and Institutional Development

The Long Nineteenth Century: A Period of Structural Adjustment

The nineteenth century stands out as a period of slow productivity growth in agriculture. As can

be seen from table 3, labour productivity as well as total factor productivity hardly increased.

This slow growth can to some extent be explained from the high levels of labour productivity

which were already reached in the early nineteenth century. These levels were the result of an

early modernisation process which had been realised in the late Middle Ages and early modern

period. As the technological opportunities of the existing production system were more or less

used, there was not much room for further productivity improvements (Wintle 2000). Besides, at

least until the 1840s farmers saw themselves faced with serious demand constraints which

refrained them from increasing their scale of production. As the Dutch economy was in a phase of

painful adjustment, trying to digest the legacy of the old trade capitalist system of the Dutch

republic and to pave the way to modern economic growth, levels of unemployment were high and

real wages displayed constant or even decreasing trends (Van Zanden and Van Riel 2004).

Furthermore, until the 1840s many neighbouring countries pursued protectionist policies, which

limited the demand for agricultural products even further.

Many of these demand constraints were removed midway the nineteenth century

(Horlings and Smits 1996). First of all, the domestic demand for food products increased. From

the 1850s onwards real wages started to increases after a nearly 300 years period of wage rigidity

(Vermaas 1995; Vermaas et al. 1998). Following Engel’s law, the increases in real wages resulted

in increases of the consumption of meat and dairy products. Furthermore, the opening-up of the

British market should be mentioned. The demand for food products in Great Britain reached

7

record-high levels in the heydays of industrialisation. Increasingly, due to an international

division of labour, the Dutch became the main food supplier for their industrialising neighbouring

countries such as Britain, Belgium and Germany (Bos 1978).

Yet, the liberalisation of international trade also posed serious threats to farmers. Free

trade in combination with the continuous decline of transportation costs resulted in an invasion of

grains and livestock products from North- and South America. The huge supplies of these low

priced products -the America’s were able to produce at relatively low costs due to the land-

abundance of their economies- resulted in a strong decrease of relative agricultural prices.

Traditional literature often states that this relative price change triggered the Great

(Agricultural) Depression of the late nineteenth century. Besides, Dutch agricultural historians

often argue that in their attempts to respond to this crisis, farmers developed strategies that laid

the foundations of the strong productivity upsurge in the agricultural sector which was realised in

the twentieth century (Van Zanden 1985).

Indeed, when we examine the real value added series for agriculture we do find evidence

for a slowing-down of agricultural growth in the period 1870-1895. Especially in the years 1875-

1879 agricultural output declined with 17%. This observation leads to the second question as to

how Dutch farmers dealt with this slow-down in agricultural growth.

One strategy that is strongly stressed in Dutch literature concerns the shift from arable

production to livestock production (Van Zanden 1985; Knibbe 1993). Indeed such a structural

shift may be expected in the light of the relative price changes of arable and livestock products.

Besides, this may have been a good strategy in the light of increasing demand which –following

Engel’s Law- resulted in an increase of the consumption of meat and dairy products.

8

Graph2: Share of livestock products in total agricultural output, 1800-1913 (in %)

Source: Smits et al (2000).

However, graph 2 shows that no clear acceleration of such a shift can be seen. On the contrary,

the increase in the contribution of livestock products followed a rather stable pattern from the

early 1850s onwards.

Another way to deal with the rapidly changing relative prices was to invest in yield-

increasing production techniques. But as can be seen in graph 3, the growth of average yields

follows a remarkable stable growth pattern throughout the nineteenth century.

0,3

0,3

0,4

0,4

0,5

0,5

0,6

0,6

0,7

18001803180618091812181518181821182418271830183318361839184218451848185118541857186018631866186918721875187818811884188718901893189618991902190519081911

9

Graph 3: Changes in average yields for arable products, 1851-1913 (index, 1913=100)

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

110,0

120,0

1851

1853

1855

1857

1859

1861

1863

1865

1867

1869

1871

1873

1875

1877

1879

1881

1883

1885

1887

1889

1891

1893

1895

1897

1899

1901

1903

1905

1907

1909

1911

1913

Source: Van der Bie and Smits (2000). These yields relate to a weighted average of wheat, rye, oats, potatoes and sugar beets.

No remarkable acceleration can be discerned during the years of the agricultural depression. Also

when examining the growth pattern of modern inputs such as fertilisers, there is no evidence that

this input growth was triggered by the agricultural depression. It was only after 1890 that these

inputs started to grow rapidly (Smits et al 2000).

This empirical evidence substantiates the view of one of the Netherlands leading

agricultural historians, Bieleman, who objects to the notion that farmers became rich while being

asleep until the 1870s, and that the Great Depression was a shock therapy due to which the

agricultural sector was being modernised (Bieleman 2000). Bieleman stresses that already before

the depression attempts were made to improve production methods. The increase of arable yields

before the 1870s can be seen as proof for this statement. Besides, many of the changes that were

realised from the early 1890s onwards were a continuation of processes which had already started

midway the nineteenth century. Another agrarian historian, Knibbe, even states that Tracy (1982)

may have been right arguing that “our view of the 1873-1896 period has been coloured by the

noisy complaints of large wheat farmers in France and the United Kingdom, while small livestock

farmers suffered much less” (Knibbe 1993, p. 138).

10

However, the analysis of agricultural development should not be confined to trends in

output and productivity. As families are the main units of production, it might also be good to

study changes in real agricultural income. Graph 4 charts the changes in agricultural income and

output during the nineteenth century. The real output series are deflated with a weighted price

index of agricultural products, and therefore reflects how agricultural production evolved in real

terms. The real income series reflect the development of the purchasing power of farmers, as the

current price series are deflated with a consumer price index.

Graph 4: Real agricultural output versus real agricultural income, 1800-1913 (in millions of guilders of 1913)

0

50

100

150

200

250

300

350

400

450

1800

1804

1808

1812

1816

1820

1824

1828

1832

1836

1840

1844

1848

1852

1856

1860

1864

1868

1872

1876

1880

1884

1888

1892

1896

1900

1904

1908

1912

Real output

Real income

Source: Smits et al (2000). The lower line represents real income.

Graph 3 shows that until the early 1880s real agricultural income witnessed considerable more

growth than real output. The difference in growth patterns can be ascribed to the relative price

decline of industrial goods and service products, which do have a significant impact on the

consumer price index. This situation changed in the late 1870s, when agricultural prices started to

fall relative to industrial prices. Therefore, farmers had to employ other strategies to ensure their

income in the long run. Now that they could no longer benefit from favourable relative price

movements, additional technological progress was needed in order to overcome the detrimental

11

effects of relative price movements on their income. The use of modern inputs –which started to

increase rapidly from the early 1890s onwards- was very helpful in this respect. But the question

arises why Dutch farmers did not start to use these inputs a decade earlier.

This ‘slow adjustment’ can be understood once we study the structure of Dutch

agriculture in more detail. From the 1870s onwards two distinctively different parts of agriculture

started to develop. In the coastal areas where farming traditionally was market-oriented, farms

tended to increase in size (Van Zanden and Van Riel (2004); Wintle (2000)). This process was

driven by the arrival of modern technologies in the processing of milk, sugar beets and potatoes.

This type of farming became more and more capital intensive and strongly depended on the use

of hired labour. In the rest of the country –in the inland provinces- where farming was more

labour-intensive, the optimal farm size became increasingly smaller. Due to the strong increase in

wages, less use was made of hired labour. Increasingly, production was realised by the farmer and

his own family. The co-existence of two such different types of farming led to serious co-

ordination problems.

Now that different parts of the agricultural production process were separately organised

–in order to minimise the costs in various parts of the production chain- farmers and owners of

production plants became dependent on each other, among others because of the high

transportation costs of unprocessed products. Van Zanden and Van Riel (2004) show how sugar

manufacturers tried to acquire a monopoly on the processing of sugar beets, and indicate how

difficult it was to ascertain which percentage of the final sales price should go to the farmer or to

the manufacturer. As farmers feared to become too dependent on the manufacturers, they were

quite hesitant to shift their production to these goods.

Van Zanden and Van Riel indicate that a new governance structure was needed, and

show how within the agricultural co-operatives different parts of the production process could be

integrated. This institutional structure proved to be attractive to farmers because they could

remain independent, and continue to do their farming on a small-scale basis, whereas at the same

time they could reap the benefits of scale by buying input products and selling their products

within the co-operations. Once these co-operations were functioning properly the use of ‘modern

inputs’ increased at light speed (Smits et al 2000).

Therefore, from an institutional perspective the Great Agricultural Depression seems to

have promoted important institutional changes, which in later periods of time resulted in an

acceleration of productivity growth. Besides, an institutional structure was being defined which

would provide fertile grounds to diffuse scientific knowledge and in which the quality of

agricultural products could be controlled. In this sense the institutional developments which were

12

induced by the depression laid the foundation of the knowledge infrastructure which would foster

the exceptional strong productivity upsurge during the twentieth century.

1913-1950: The Race of Technological Progress against the Deterioration of the Agricultural Terms of Trade

Earlier research into the long-term growth pattern of the Dutch economy has revealed that World

War I can be seen as a watershed in economic development (Smits et al 2000a). After 1917, the

year which by means of a Chow test is being identified as a structural breaking point, growth

rates of labour productivity as well as total factor productivity show a sharp increase. This pattern

can also be seen for the agricultural sector. Table 5 already showed how strongly output and

labour productivity increased during and after the First World War. The increases in labour

productivity can be ascribed to rises in capital intensity as well as TFP.

The strong growth during and shortly after the war can be explained from the favourable

terms of trade and the rapidly increasing demand for food products by countries which were –

contrary to the Netherlands- being directly involved in the war and where the food production

suffered from the war circumstances (Van der Bie 1995). However, these favourable

developments were short-lived. In the literature it is stated that already during the 1920s

agricultural income witnessed a considerable decline die to unfavourable price movements.

Especially the strong increase in wages is being seen as a problematic feature.

13

Graph 5: Development of wages relative to agricultural output prices, 1913-1950 (index, 1913-100)

0,0

50,0

100,0

150,0

200,0

250,0

300,0

350,0

400,0

1913

1914

1915

1916

1917

1918

1919

1920

1921

1922

1923

1924

1925

1926

1927

1928

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939

1940

1941

1942

1943

1944

1945

1946

1947

1948

1949

1950

Source: Van der Bie and Smits 2000.

Indeed, partly due to an increasing influence of labour unions in the period around World War I

wage levels strongly increased. During the 1920s relative wage levels were a factor 1.5 higher

than in 1913. In the early 1930s –in a time that agricultural output prices plummeted- this ratio

increased even more to an astounding level of almost 3.5. We can therefore safely conclude that

rising wage levels might have had a negative effect on the income of farmers.

14

Graph 6: Movement of agricultural relative to industrial prices, 1921-1950 (index, 1921=100)

60

70

80

90

100

110

120

1921

1922

1923

1924

1925

1926

1927

1928

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939

1940

1941

1942

1943

1944

1945

1946

1947

1948

1949

1950

Source: Calculated on the basis of Van der Bie and Smits (2000) and De Jong (2003).

A second relative price movement from which farmers may have suffered, concerns the

worsening of the agricultural terms of trade. Graph 6 shows how strongly relative agricultural

prices decreased until the early 1930s. This unfavourable movement could only be stopped by a

strong government intervention in this period. However, around 1950 relative agricultural prices

were at a level of circa 80% of that of 1921.

One way in which farmers responded to this “challenge” posed by the relative price

movements, was to invest in new technologies in order to become less dependent on labour.

However, technological change was not characterised by mechanisation, as was the case in the

industrial sector where electrical motors mushroomed during the 1920s and 1930s. Although on a

small scale mechanisation of agriculture had started already around 1850, and many of these

technological findings had been refined during the twentieth century, the main power source in

agriculture was still that of horse power (Knibbe 1999).

Much more important than mechanisation, were attempts to rise yields per hectare and to

improve the quality of agricultural products. In both cases the use of scientific knowledge was

instrumental in bringing about important qualitative and quantitative changes. Productivity

growth was a result of concerted action, in which farmers identified technological bottlenecks and

15

systematically tried to overcome these problems. They often did this within the framework of the

co-operations which were mentioned earlier. Agricultural co-operations not only served as

organisations in which economies of scale could be realised for the buying of raw materials and

the selling of final products, also quality control, education, spread of new technological

knowledge. Especially in the production of wheat, farmers closely co-operated in order to find the

optimal production technologies. In special clubs they compared their findings, relating yields to

the type of soil on which the wheat was grown. Farmers were no passive “technology takers” but,

actively participated in finding suitable kinds of production technologies (Bieleman 2000).

The institutional framework in which this technological diffusion was realised had its

roots in the late nineteenth century when (in 1886) the agricultural lobby urged the government to

install an agricultural commission (Landbouw Commissie) to study the nature of the problems

farmers were facing during the agricultural depression, in order to allow the government to

formulate policies to alleviate these problems.3 The activities of this commission marked the start

of the development of the famous OVO triangle (OVO stands for Onderzoek, Voorlichting en

Onderwijs, i.e. Research, Advice and Education). For each region in the Netherlands an adviser

was appointed who would inform farmers about the most recent methods to produce efficiently.

A large network evolved in which new scientific insights were introduced and in which

knowledge was being disseminated. Next to this informal learning system, also a formal

agricultural educational system was built. In 1918 the predecessor of Agricultural University of

Wageningen was founded, later followed by the foundation of numerous agricultural schools in

primary and secondary education. The third pillar on which this knowledge infrastructure was

built were the so-called “proefstations”, research institutes which were meant to improve the

quality of agricultural products. Farmers could test the quality of their products there and get

advice on to how to increase the quality of their production. The government was active in

stimulating this kind of testing, eager as it was to sustain the competitive advantage of Dutch

agriculture on the export markets.

This input of scientific knowledge in agriculture resulted in considerable productivity

increases.4 This can be demonstrated on the basis of harvest yields of Dutch farmers, compared

with data for Belgium and Germany.

3 This section is largely based on research by Bieleman and associates, which is published in volume III of the History of Technology of the Netherlands during the twentieth century. 4 See Minderhoud (1935) and Frost (1930). Efficiency increases were realised through: The introduction of more productive varieties of animals and plants; increased as well as more effective use of fertilisers on arable land and pastures; better control of diseases; improved product quality; more effective use of

16

Table 6: Yields of wheat and rye per hectare in Belgium, the Netherlands and Germany, 1880-1937 Wheat Rye Be Neth Germ Be Neth Germ

1880 1,64 1,56 1,46 1,51 1,19 1,161895 1,97 1,91 1,69 1,91 1,48 1,391910 2,43 2,35 2,07 2,22 1,81 1,781930 2,52 2,91 2,12 2,4 2,17 1,721937 2,71 3,09 2,22 2,37 2,25 1,74

increase 1880-1910 0,8 0,8 0,6 0,7 0,6 0,61910-1937 0,3 0,7 0,2 0,2 0,4 -0,0Source: Knibbe (1995)

Graph 7 indicates to what extent these technological changes were strong enough to

counterbalance the unfavourable relative price movements that farmers were facing in the inter-

war period.

Graph 7: Real output versus real income in agriculture, 1913-1950 (index, 1913=100)

Source: Calculated on the basis of Knibbe (1993) and Van der Bie and Smits (2000).

pastures and more home-grown feed on farms (during the 1930s).

0,0

100,0

200,0

300,0

400,0

500,0

600,0

700,0

800,0

900,0

1913 1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949

output

Income

17

There is indeed evidence of a sharp decline of real income and output after World War I, but this

development can be seen as a normalisation after the exceptional growth during the war and its

immediate aftermath. However, after this normalisation, income and output levels in the early

1920s were still higher than they had been in 1913I and displayed considerable growth until 1929.

We can therefore conclude that at least until the start of the depression of the 1930s, technological

progress was strong enough to compensate for the decline of relative agricultural prices. It should

be noted, however, that these aggregate figures may obscure some underlying differences. For

example, farmers who rented land and who used substantial amounts of hired labour, were facing

serious problems. From 1927 onwards labour income from farmers fell below that of agricultural

labourers (Sneller (1951) p. 21).

In the light of the rapid fall of agricultural income in the early 1930s, it is not strange that

the Dutch government decided to intervene. Although the government in most cases followed a

liberal economic policy, i.e. leaving as much to the market as possible, the situation in the

agricultural sector became untenable. Besides, the specific structure of the Dutch “political

market” motivated the government to abandon their liberal policies, and to start an extensive

policy of supporting farmers by setting minimum prices for arable products and so-called

guaranteed prices for livestock and horticultural goods.

Because of the pillarisation of Dutch society, each social group had its own newspapers,

broadcasting companies, and often also political parties. This system enabled pressure groups to

do extensive lobby work in order to persuade the government to formulate policies which would

benefit them (Griffiths 1987). Especially the Christian parties (two protestant parties and the

catholic party) were strongly dependent on the agricultural voters. And as the agricultural sector,

partly due to the strong position of the co-operations, was well organised, farmers were quite

successful in pressuring the Christian parties of which always at least one was in government.

The new agricultural policy started July 1931 with the introduction of the Wheat Law,

which guaranteed minimum prices to farmers at about twice the world price level. Besides,

bakeries were forced to use flour which consisted of minimal 20% Dutch wheat). Wheat

production substantially increased due to this government policy, and as wheat was primarily

consumed domestically the price increases could easily be transferred to the consumers. In their

attempts to support farmers –and not to lose the agrarian voters- the Dutch government burdened

the urban population with rising food prices, whereas it also allowed the government deficit to

increase steadily.

This system of minimum prices was also used in other segments of the agricultural sector,

although sometimes organised in a somewhat different way. As livestock and horticultural

18

production were strongly export-oriented, prices could not be as straightforwardly transferred to

producers as was done with arable products. Therefore, the somewhat more complex system of

target prices was introduced. These target prices were a weighted average of high domestic

prices, and low export prices. For the domestic component, the levies (which were used to

subsidise the farmers) were paid by the food processing industries, which subsequently passed

these costs on to the consumers in terms of higher consumer prices.

As the Dutch did not leave the Gold Standard until 1936, export prices plummeted.

Therefore, domestic prices had to be set at very high levels in order to be able to support the

farmers sufficiently. In a way this system led to the subsidising of foreign food consumption, for

which Dutch consumers had to pay a high price. In two or three years time the expenses on food

increased with 8 to 10%. This was the high price which was paid to stick to the government

adagio of “exports at any price” (see Krips van der Laan 1986).

These policies had the expected favourable impact on farmer incomes as is shown in table

7.

Table 7: Income and expenditure on Dutch farms, 1929/30-1938/39 (in Dutch guilders per hectare) 1929/30 1933/34 1938/39Turnover 494 272 313 Expenses 472 345 256of which: Labour 94 81 58Feed 132 92 71Seed + 44 24 22Fertilisers Rent 108 86 63Other 94 62 42 Net income 22 -73 57

Source: Knibbe (1993) pp. 201 and 203.

Even though turnover values in 1938/39 were not restored to pre-depression levels, total expenses

had fallen considerably. It would therefore be unfair to explain the rise in agricultural income

solely from the artificial high price levels, as government policy was also aimed at a more

substantial strengthening of agricultural production. In the inter-war period the foundations were

laid for the restructuring of agricultural areas with regard to landownership. The re-allotments of

19

land, which would reach an enormous magnitude in the post-war era, already resulted in scale

increases and cost abatements in the 1930s. Besides, the ever-growing importance of quality

control and education –both promoted by the government- resulted in substantial increases in

productivity.

Table 8: Volume and price level of current inputs and output, 1929-1934 (1929=100)

A B C D E F1929 100 100 100 100 100 1001930 100 100 100 69 85 811931 104 108 96 58 64 911932 102 110 93 51 57 891933 100 100 100 43 54 801934 97 105 92 48 65 74

A: volumes input B: volumes output C: units of input per units of output D: price level input E: price level output F: ratio of input and output prices

Source: Knibbe (1993), p. 202.

As can be seen from table 8, increases in agricultural income were not merely the result of

(artificial) high prices set by the government. The columns A-C indicate that in 1934, compared

to 1929, less inputs were needed to produce the same level of output. The technological changes

described above can explain this development. Besides, favourable relative price changes had a

positive impact on agricultural value added. Not only did output prices witness a relative increase,

also some important input prices (above all rents) decreased substantially. From 1932 onwards

rents were set at a level which would ensure farmers with a “reasonable” standard of living. But

most importantly, wage costs constituted an increasingly less important part of total production

costs. Farmers followed various strategies in order to reduce the amount of paid labour that they

used (Knibbe 1993, p. 205):

-Increasingly they shifted their activities from labour-intensive root crops (sugar beet and

potatoes) to wheat and after 1935 rye and oats;

-On medium and larger sized firms mechanisation of parts of the production process occurred.

extended (especially for harvesting grain and hay). On all farms agriculture was rationalised,

while labour was hired by the hour instead of by day.

20

-The use of hired labour was limited. More and more paid labour was replaced by family labour.

Finally on farms maintenance activities declined.

All in all Dutch agriculture entered a new phase in the 1930s. Technological progress was not

strong enough to compensate for the relative price decline of agricultural output. New responses

such as mechanisation and guaranteed prices were developed. These strategies would dominate

post-war agricultural development in the Netherlands.

4. Conclusion

Agriculture can be seen as one of the main pillars of Dutch competitive strength in the long run.

However, the nature of agricultural production has substantially changed. Especially from the

1870s onwards this sector has witnessed drastic structural changes. In this paper it is argued that

these changes were mainly induced by relative price changes.

Until 1870, when agricultural prices showed rising trends, agricultural income was

relatively high. This does not mean, however, that farmers did not pursue product- and process

innovations. Many of the technological developments that were realised in the late nineteenth and

early twentieth centuries had their roots in the pre-1870 era.

From the 1870s onwards farmers had to devise strategies in order to come to terms with

the deteriorating agricultural prices. In the early phases they did this by means of institutional

changes. By creating economies of scale in the agricultural co-operatives, they were able to

continue their activities on a small-scale basis, while reaping the benefits of working together

with other farmers in selling their products and buying inputs.

These co-operatives proved to be of vital importance in later periods because they

enhanced the dissemination of knowledge. This technological diffusion which was instrumental

in raising the yields of many arable crops, was the “second” answer to negative relative price

movements next to the creation of scale economies.

However, during the depression of the 1930s -when agricultural prices plummeted- these

institutional and technological strategies proved to be ineffective. New answers were being

sought in order to revive the sector. First of all, limited experiments were done in the field of

mechanisation. Here the roots can be found for the spectacular productivity growth that was

realised in the post-war period. Maybe even more important was the radical change in

government policy. During the 1930s the Dutch government –against its liberal economic

principles- introduced a system of guaranteed prices, which ensured farmers of a proper income.

This Dutch policy can be seen as a blueprint of the Common Agricultural Policy that was pursued

21

by the European Community from the 1950s onwards. The continuity in terms of responses to

exogenous shocks may be striking, yet these responses eventually led to a drastic change in the

nature of agricultural activities. The enormous increases in agricultural output, partly caused by

the common European policy, resulted in scale increases and a growth of capital intensity which

in the end led to the disappearance of small-scaled farming. From the 1960s onwards farming

was no longer a family activity. Farms started to operate as factories, and the modern bio-industry

was born.

22

List of Literature

-Ark, Bart van and Herman de Jong (1996). ‘Accounting for economic growth in the Netherlands since 1913’, Economic and Social History in the Netherlands, vol 7, 199-242. -Bie, R.J. van der (1995). ‘Eene doorloopende groote roes’. De economische ontwikkeling van Nederland, 1913-1921 (Amsterdam, 1995) -Bie, R.J. van der and J.P. Smits (2000). Tweehonder jaar statistiek in tijdreeksen, 1800-1999 (CBS-RUG). -Bieleman, J. (2000). ‘De landbouw en het sociaal-economisch krachtenveld’, in: J.W. Schot et al. (eds.), Techniek in Nederland in de twintigste eeuw. Deel III landbouw en voeding, 13-25 -Bieleman, J. (2000). ‘De cultuurtechnische verbouwing van Nederland’, in: J.W. Schot et al. (eds.), Techniek in Nederland in de twintigste eeuw. Deel III landbouw en voeding, 27-63 Bieleman, J. (2000). ‘Dieren en gewassen in een veranderende landbouw’, in: J.W. Schot et al. (eds.), Techniek in Nederland in de twintigste eeuw. Deel III landbouw en voeding, 126-225 -Bieleman, J. and P. Priester (2000). ‘Boeren werd agri-business -Een synthese’, in: J.W. Schot et al. (eds.), Techniek in Nederland in de twintigste eeuw. Deel III landbouw en voeding, 13-25 -Bos, R.W.J.M. (1978). Brits-Nederlandse handel en scheepvaart, 1870-1914. Een analyse van machtsafbrokkeling op een markt -Burger, A., 1993). Voor boerenvolk en vaderland. De vorming van het EEG-landbouwbeleid 1959-1966 -Burger, A. and J.P. Smits (1996). ‘A benchmark comparison of service productivity between Europe and the United States for 1910’, Economic and Social History in the Netherlands, vol 7, 133-160. -Buyst. E., J.P. Smits and J.L. van Zanden (1995). ‘National accounts for the low countries’, Scandinavian Economic History Review XLL, no. 1, 53-76. -Clemens, A., P. Groote and R. Albers (1996). ‘The contribution of physical and human capital to economic growth in the Netherlands’, Economic and Social History in the Netherlands, vol 7, 181-198. -Drukker, J.W. (1990). Waarom de crisis hier langer duurde -Frost, J. (1930). Die Hollaendische Landwirtschaft. Ein Muster moderner Rationalisierung -Griffiths, R.T. (ed.) (1987). The Netherlands and the Gold Standard, 1931-1936. -Hayami, Y. and V.W. Ruttan (1971). Agricultural development: An international perspective -Hoogh, J. de. (1959). Pachtprijsbeheersing en landbouwprijsbeleid in Nederland -Horlings, E. and J.P. Smits (1996). ‘Private consumer expenditure in the Netherlands, 1800-1913’, in: Economic and Social History in the Netherlands 7 (1996), 15-40. -Jacobs, D., P. Boekholt and W. Zegveld 91990). De economische kracht van Nederland. Een toepassing van Porter’s benadering van de concurrentiekracht van landen. (p29) -Jong, H.J. de (2003). Catching-up twice. The nature of Dutch industrial growth during the 20th century in a comparative perspective -Knibbe, M. (1993). Agriculture in the Netherlands 1851-1950. Production and institutional change (Amsterdam) -Knibbe, M. (1999) ‘Landbouwproductie en –productiviteit, 1807-1997’, in: Ronald van der Bie and Pit Dehing, eds., Nationaal goed. Feiten en cijfers over onze samenleving, (ca.) 1800-1999 -Krips van der Laan, H.F.M. 91986). ‘Praktijk als antwoord. S.L. Louwes en het landbouwcrisisbeleid’, in: Historia Agriculturae XVI. -Maddison, A., (1991). Dynamic forces in capitalist development -Maddison, A., (1993). Standardised estimates of fixed capital stock: A six country comparison -Maddison, A. (1995). Monitoring the world economy, 1820-1992 -Meer, C.L.J. van der and S. Yamada (1990). Japanese agriculture. A comparative analysis -Minderhoud, G. (1936). De Nederlandse landbouw -Mitchell, B.R. (1992). International Historical Statistics. Europe 1750-1988

23

-Priester, P. (1991). De economische ontwikkeling van de landbouw in Groningen, 1800-1910 -Priester, P. (2000). ‘Boeren met machines’, in: J.W. Schot et al. (eds.), Techniek in Nederland in de twintigste eeuw. Deel III landbouw en voeding, 65-125 -Smits, J.P. (1995). Economische groei en structurele veranderingen in de Nederlandse dienstensector 1950-1913. -Smits, J.P., E. Horlings and J.L. van Zanden (2000). Dutch GNP and its components, 1800-1913 (Groningen Growth and Development Centre, Monograph Series, no 5) -Smits, J.P., H.J. de Jong and H.H. van Ark. (2000a). ‘Three phases of Dutch economic growth and technological change, 1815-1997’, Research Memaorandum Groningen Growth and Development Centre -Smits, J.P. and H.J. de Jong (2003). ‘Changes in Dutch comeptitiveness. The role of institutions in the process of long-term economic growth’ (unpublished paper) -Smits, J.P. (2004). ‘Technologie, productiviteit en welzijn’, in: J.W,. Schot, eds., Techniek in Nederland in de twintigste eeuw, volume VII. -Sneller, Z.W. (1951). ‘Anderhalve eeuw in vogelvlucht 1795-1940’, in: W. Sneller (ed.), Geschiedenis van de Nederlandse landbouw 1795-1940, pp. 36-122. -Tracy, M. (1982). Agriculture in Western Europe. Challenge and response -Vermaas, A. (1995). ‘Real industrial wages in the Netherlands’, in: P. Scholliers and V. Zamagni, eds., Labour’s reward. Real wages and economic change in 19th and 20th century Europe (Aldershot) -Vermaas, A., S.W. Verstegen and J.L. van Zanden (1998). ‘Income inequality in the 19th century. Evidence for a Kuznets curve?’, in: L. Soltow and J.L. van Zanden, eds., Income and wealth inequality in the Netherlands 16th-20th century, 145-174 -Vries, Jan de (1974). The Dutch rural economy in the Golden Age, 1500-1700 -Vries, Jan de (1984). European urbanisation 1500-1800. -Wintle, M. (2000). An economic and social history of the Netherlands 1800-1920. Demographic, economic and social transition. -Zanden, J.L. van (1985). “De economische ontwikkeling van de Nederlandse landbouw in de negentiende eeuw, 1800-1914”, in: AAG Bijdragen, no. 25. For a shortened version in English, see: J.L. van Zanden (1991) The transformation of European agriculture. The case of the Netherlands -Zanden, J.L. van (1988). ‘Op zoek naar de “missing link”: hypothesen over de opkomst van Holland in de late middeleeuwen en de vroeg-moderne tijd’, Tijdschrift voor sociale geschiedenis 14, 359-386. -Zanden, J.L. van (1993). The rise and decline of Holland’s economy -Zanden, J.L. van (1991). ‘The first green revolution. The growth of production and productivity in European agriculture’, Economic History Review XLIV, , 215-239. -Zanden, J.L. van (1996). ‘The dance around the Gold Standard; Economic policy in the depression of the 1930s, in: J.L. van Zanden, ed., The economic development of the Netherlands since 1870, 120-136 -Zanden, J.L. van (1998). The economic history of the Netherlands 1914-1995 -Zanden, J.L. and A. van Riel (2004). Strictures of inheritence. The Dutch economy in the nineteenth century