Agriculture and Economic Development Germany 1870-1939. I. Introduction. One of the most important issues in development economics is the role of agriculture. Does this sector have a purely passive part in the development process, as a source of surplus labour for the industrial sector? Or, is agricultural modernisation an essential component of the initial stages of modern economic growth? And, if so, what is the impetus for change? Does it come out of developments within the agricultural sector itself? Or is it imposed by outside forces – a development-minded government or commercialisation consequent on industrialisation in nearby states?1

German agriculture in the nineteenth and early twentieth centuries provides a fascinating example of these forces at work. It has rarely if ever been studied in the context of the debate over development policies, yet it provides a strong and informative example of a modernisation process which began before the onset of industrialisation, and which continued throughout the early stages of industrial growth. German agriculture was a very active part of the growth process. The initial impetus came from outside forces. The impact of the Napoleonic Wars was a shock to the national psyche which made possible radical alterations to customary procedures and to traditional systems of property rights. The humiliating defeat of the Prussian army at Jena in 1806 set off a reform process which extended into agriculture and transformed traditional labour services and other contractual duties into market relationships. Land reforms created a free-holding peasantry from tenants who lacked ownership rights. In this, Prussia was a fore-runner of other states which have reacted to defeats with radical reform processes: Japan post 1945, Taiwan post 1948 and South Korea after the end of the Korean War have all managed to push through land reforms using the shock of defeat or other emergencies. These “Jena-like” emergencies create opportunities for the radical re-organisation of property rights, partly because they are seen as finite and unusual – property owners do not fear that they presage persistent interference and repeated re-allocations. Other transformative forces included the effect of industrialisation elsewhere in Europe – particularly in Britain. British demand for grain imports were met partly by German exports, especially from the lands east of the Elbe out of the Baltic ports of Stettin and Danzig. These was an important impetus to social and technological change for these areas, which were the regions most suited to large scale grain production but which were also the most traditional and backward in their social and contractual organisation. From 1850 onwards the impetus for agricultural change came also from the expanding population of Germany’s industrial regions as well as continued British demand. By 1870, a process was well under way which would make agricultural growth an important component of the growth of the German economy as a whole. 1 The insistence on the importance of agricultural transformation came initially from Theodore Schultz, Schultz (1964).

Oliver Grant

IEHC 2006 Helsinki Session 60

Commercialisation, improved transport links, reformed contractual relations and access to new technology all played a part in this transformation. II. Assessing German agricultural growth 1870-1914. a. Structural change. Broadberry’s estimates of Total Factor Productivity by sector in Britain and Germany provide the context for this discussion of the performance of German agriculture in the late nineteenth and early twentieth centuries. The figures raise some interesting questions. Between 1871 and 1911 German agricultural TFP converges on the British figure, rising from an index of 55.7 (Great Britain = 100) to 67.3. But after 1913 the gap widens. In 1925 German agricultural TFP is 53.8% of the British level. By 1938 it is still only 59.0%. The position attained in 1911 is not recovered in the interwar period.2

This leads to a series of questions: what were the causes of the good performance of German agriculture up to 1913 and why was this not maintained in the 1913-38 period? Was this the result of changes within the agricultural sector or did it reflect outside factors, such as policy changes or changes in the international trading system? The implication is that the performance of German agriculture was a drag on the German economy as a whole in the crucial period leading up to the outbreak of the Second World War, which is an intriguing finding and calls for further study. Broadberry also argues that the rate of structural change in the German economy was not high in 1870-1914 and that this held back the overall growth of the economy. As the transfer of labour from agriculture to industry and services is the main component of structural change, this implies that agriculture was, despite a relatively good internal performance, a drag on overall growth as a result of political decisions to support the agricultural sector through the imposition of tariffs and other measures. The agricultural sector was larger than the level which would have been most efficient given the pattern of comparative advantage of the German economy. The slow rate of structural change of German employment in the period up to 1913 may be, in part, a statistical effect due to deficiencies of the German occupational censuses, in particular the occupational census of 1882. The share of agriculture in total employment was 43.7% in 1882 and 34.7% in 1907, a relatively modest drop of 9 percentage points over 25 years. But, the drop in the total agricultural population (the proportion of the population in households headed by someone with an agricultural occupation) is larger, from 40.4% in 1882 to 27.4% in 1907. The drop of 13% on this measure indicates a more rapid rate of structural change.3 The main reason for the discrepancy is that the 1882 census showed a relatively low level of participation for wives and other family members, but this then rises in subsequent censuses. This gave rise to a concern, which was expressed by the statistical authorities at the time, that the 1882 census had under-recorded the labour contribution of wives and other family members. It is, however, also possible that what was picked up was a degree of under-employment in German agriculture at the time, and that this was

2 Broadberry (1997). 3 The German occupational censuses were published in Statistik des Deutschen Reichs n.f.2-7 (1882), n.f.102-111 (1895) and n.f.202-211 (1907). Summary statistics were published in the annual Statistisches Jahrbuch für das Deutsche Reich.

then reduced as employment opportunities improved, inside and outside the agricultural sector. This point is of importance as it leads to a revised view of the pattern of structural change in the German economy over the whole period to 1939. Figure 1 illustrates this, using results from the employment censuses corrected for boundary changes. Figure 1. Structural change in the German Economy, 1882-1939. The share of agriculture in total employment, and the agricultural population as a percentage of the total population, German Reich 1919 boundaries. (Projections carry forward the rate of change 1882-1907)

Using the agricultural employment figures the rate of structural change is broadly continuous over the whole period: there is a decline in the rate of change between 1907 and 1933 and a pick-up in 1933-39. The rate of change for 1907-1939 (as an annual decline in the agricultural proportion of the workforce) is 79% of the 1882-1907 figure. The shaded area in the figure shows how far off trend agricultural employment was in the interwar period. But with the agricultural population figures (the lower line in figure 1) the break after 1913 is much starker. Even though the rate of change increased in 1933-39, the overall rate of relative decline in 1907-39 was still only 55% of the 1882-1907 figure. A continuation of the pre-1907 trend would have brought the total agricultural population

down to 10.7% of the German population, against the figure of 18.2% actually recorded by the census of that year. Total agricultural employment would have been just 15.4% of the occupied population, compared to the actual figure of 26.1%. The shaded area is, in consequence, much larger. So, if the deficiencies of the 1882 census are borne in mind, it is clear that the German economy as a whole was well off-trend in 1939, given the rate of structural change achieved in 1882-1907. The disruptions of the 1913-33 period had resulted in a larger agricultural sector than would have been anticipated if the previous trend had continued. B Import trends. One important factor in the rate of structural change was the decision of the German Empire to protect its agricultural sector against US grain imports in the 1870’s. In this Germany differed from Britain, which chose not to protect. But it also differed from a number of other European countries, including France and Italy, in that the level of protection was not high enough to prevent a large increase in imports, and a decline in self-sufficiency. A significant point was that Germany had already made progress as an industrial nation. Germany had a comparative advantage in industrial goods, and was therefore able to pay for increased agricultural imports by expanding exports of manufactures. This was not an option which was available to other European countries which lacked a substantial capacity to export industrial goods. Another factor was that Germany in the 1870’s was a more recent industrial power than Britain in the 1870’s when cheap grain imports started to appear on the European markets. There was still a large rural population, and German cities were small by comparison with Britain. They were already suffering from the effects of rapid expansion, leading to high sickness and mortality rates. By contrast, most British industrial cities had been growing steadily since the 1780’s or before. While urban problems were still acute, progress was being made towards their amelioration. This was an important background factor behind the decision to protect. Only 12.5% of the German population in 1871 lived in towns of over 20,000 inhabitants. A 1% fall in the German agricultural population (which was then 49.5% of the labour force) would produce a 4% increase in the urban population if all those who left agriculture went to the cities.4 But in Britain, with a much smaller agricultural sector (22% of the labour force) and 42% of the population already living in towns of over 20,000, each 1% decline in the rural labour force would produce a migration stream equal to just 0.5% of the existing urban population. For these reasons, the decision to protect was not so irrational. But, despite protection the balance of German trade in agricultural produce swung heavily into deficit. In the early 1870’s Germany had a small deficit on agricultural trade, amounting to 0.7% of Net Domestic Product in 1870-2. By 1911-13 this had risen to 4.5% of total Net Domestic Product. As figure 2 shows, import dependency in cereals reached 15% of total domestic consumption in the early 1900’s and stayed at this level until the First World War. In this area, the future German Reich had been a net exporter in 1850’s and 1860’s. 4 The relationship between agricultural conditions and migration is a theme explored in Grant (2005).

Figure 2. Net imports of cereals as a percentage of total domestic consumption (including use as animal feed), Germany (post-1871 boundaries) 1850 -1913.

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The shift from being a net exporter to being a net importer was, in the initial stages, only partly due to increased competition from the United States. It is certainly true that Germany was ousted from some important third markets. In 1856-60 German cereal exports accounted for 23 % of total British imports, but this had fallen to 8% in 1871-5. Meanwhile the US share rose from 19% to 41%. But, German producer prices were actually rising over this period, by 13% for wheat and 15% for rye. The negative effects of US competition were masked by the effect of rising domestic demand in these years. Figure 3 shows that German producer prices were quite buoyant in the mid 1870’s, and only started to slide from 1877 onwards. Between Figure 3. German producer prices for cereals, compared with the duties on imported grain levied by the German Reich from 1879 onwards.5

5 Producer prices from Hoffmann (1965).

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dashed line shows five-year moving average duties in 1902-6 were on a sliding scale, on a range of 55-75 Marks (maximum and minimums are shown)

c. Productivity growth. The good performance of German agriculture in the late nineteenth century is based largely on a strong growth in physical measures: German yields caught up with those in the more advanced agricultural economies; livestock numbers rose at a faster rate than in other countries. Figure 4 gives wheat yields in selected European countries from 1848 to 1913. In the mid nineteenth century German yields were roughly the same as those in France, and well below those in Britain and Denmark. German yields were also behind those in Belgium and the Netherlands. But in the course of the late nineteenth and early twentieth centuries, Germany caught up with the leading group, and left France some way behind. From 1879 onwards regional figures are available, which make it possible to compare yields in Germany east of the Elbe with the rest of Germany. The figure shows

that the improved performance of East-Elbian agriculture was an important factor in the overall increase in German yields. Yields rose at a faster rate in this region compared to the other German regions. In 1879-1883 eastern yields were 14.8% below those in the rest of Germany, but by 1909-1913 they were 2.7% higher on average.6

Figure4. Wheat yields 1848-1913, 1000kg per hectare, rolling 5 year averages. log scale. 7

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Figure 5 repeats the analysis for rye, which was the most important cereal crop in Germany. Britain is omitted as little rye was grown and yield figures are not available. In this case, German yields show a slow upward trend to the late 1880’s, which then accelerates, catching up and surpassing Denmark, the European leader. Again France is left behind. The regional breakdown also shows a pronounced convergence between yields east of the Elbe and in the rest of Germany. In this case, the East does not fully catch up, but the gap closes at a rate which is slightly faster than for wheat. In 1879-1883 eastern yields were 26.8% below the rest of Germany; by 1909-1913 the gap was down to 8.3%.

6 Agriculture east of the Elbe has long had a bad press. Grant (2003) presents a contrary view. 7 Calculated from data in Mitchell (1981), from national sources, but then adjusted using the 1905-9 Institute International d’Agricole comparison of cereal yields, Institut International d’Agriculture (1915) p.28. The British figures were converted to metric tons using estimates of bushel weights from the 1879 Encyclopaedia Britannica.

Compared to France, where rye yields showed little tendency to increase in the late nineteenth century, yields in eastern Germany went from being 12% below in 1879-1883, on average, to being 68% above in 1909-1913. Figure 5. Rye yields 1848-1913, 1000kg per hectare, rolling 5 year averages.8

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The main force driving up yields was improved nutrient supply. Livestock numbers rose substantially during the late nineteenth and early twentieth centuries. Cattle numbers rose from 15.8 million in 1873 to 21.0 million in 1913, while pig numbers increased from 7.1 million to 25.6 million. Sheep numbers fell with the switch to more intensive systems. Rough calculations can be made of the implications of these increases for plant nutrient supply, when estimates of the value of animal manures are added to figures for applications of artificial fertilisers, which are rather better recorded since many materials were imported. Table 1 provides a calculation of the total increase in the main categories of plant nutrient supply from these sources, comparing 1878-80 with 1911-4.

8 As figure 5.4.

Table 1. Plant nutrient supply in German agriculture, average annual applications divided by the total agricultural area.9

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Nitrogen (kg/ha) 14 33 A. Estimates of nutrients available from animal manure: Phosphate (kg/ha) 12 28 Potash (kg/ha) 11 26

Nitrogen (kg/ha) 0.7 6.4 B. Estimates of nutrients available from artificial fertilisers Phosphate (kg/ha) 1.6 18.9 Potash (kg/ha) 0.8 16.7 1878/80 to 1911/14 C. Overall increase in nutrient Nitrogen (kg/ha) +168% supply Phosphate (kg/ha) +245% Potash (kg/ha) +262% D. Proportion of increase supplied Nitrogen (kg/ha) 23.1% by artificial fertilizers Phosphate (kg/ha) 52.0% Potash (kg/ha) 51.5% The table shows a very substantial increase in total nutrient supply, with applications of potash and phosphate rising by a factor of 3.5. The increase in nitrogen is rather less, but in this period a substantial amount of nitrogen was made available by the use of nitrogen-fixing crops (such as clover) as part of the normal arable rotation. The effect of this cannot easily be calculated. In general, therefore, the rapid increase in yields shown in figures 3 and 4 can be explained by improvements in plant nutrition. However, this was not the whole story. Plant breeding improvements were also relevant, as it was necessary to improve straw strength if the more heavily fertilized crops were to bear full fruit, without “lodging” (falling over) before harvest. This was done partly by the importation of English “Squarehead” wheat varieties which were crossed with German strains to improve straw strength and resistance to lodging. German breeders, such as the pioneer breeder Wilhelm Rimpau, also produced improved rye varieties which showed similar traits.10 Table 1 also shows the proportion of the increase in nutrient supply which can be attributed to the use of artificial fertilizers. Even in 1911-14 artificial fertilizers accounted for only about a third of total plant nutrient supply, but the contribution at the margin – the proportion of the increase which was supplied by artificial fertilizers – was rather greater. Over 50% of the increase in the supply of potash and phosphate came from artificial fertilizers. In general, therefore Germany in 1870-1913 can be seen as a classic case of an agricultural sector whose role in the development process was not a passive one, merely

9 Figures for artificial fertilisers from Schremmer (1988) who also provided estimates of total applied tonnage of animal manures. These have been converted to nutrient value using figures from Voelcker (1883). 10 Frauendorfer (1956).

providing surplus labour to the industry, but which was an active participant in the development process. New crops were introduced, such as sugar beet, new techniques were employed. III. Regional factors in German agricultural performance 1870-1913. Perhaps the most telling evidence of the transformation of German agriculture comes from the regional breakdown. The contribution of the areas east of the Elbe was a major factor in the overall success of the agricultural sector. These regions, initially backward, experienced rapid productivity growth and caught up with the more advanced central regions. Productivity estimates can be produced, using regional accounts, for 1880/4, 1893/7 and 1905/9.11 These five year periods were chosen because they centred on the census years of 1882, 1895 and 1907 – the occupational censuses of these years were an important source of information. Figure 6 shows the estimated increase in net value added per full time labour unit (labour input adjusted for part-time employment). The figures from which these growth rates are calculated are given in Appendix B. Figure 6. Percentage increase in agricultural productivity 1880/4 to 1905/9. (For regional definitions and key to numbers see Appendix A)

11 The original calculations are given in Grant (2002).

As can be seen from this figure, most of the regions experiencing rapid productivity increase were in the East. The fastest increase was in East Prussia (region 1), where productivity nearly doubled in 25 years. Seven other regions had increases of 2% per annum or more. All these were eastern regions (regions 2,3,4,5,7 and 10). By contrast, productivity gains in western Germany were more modest, and in the south and south-west there was much slower growth: 1% per annum in Bavaria (region 17) and 0.5% per annum in Württemberg-Höhenzollern (region 20) and Alsace-Lorraine (region 21). Productivity in these regions also lagged behind the centre, but, unlike the east, they did not converge. In central Germany there were also below average gains in Mecklenburg (region 6) and in Prussian Saxony-Anhalt (region 8). This represented a rather different process. These two regions, along with Schleswig-Holstein, were the leading regions in 1880-4, with productivity levels well above the national average (88% above for Mecklenburg and 62% above for Saxony-Anhalt). But their rate of increase in 1880/4 to 1905/9 was below average, although it was not a case of stagnation: the estimated increases of 0.98% for Saxony-Anhalt and 1.23% for Mecklenburg were quite respectable. What made them less impressive was the extremely rapid rate of increase further east. But this represented the realization of a possibility for rapid catch-up which would naturally diminish as the gap between the east and the central regions was diminished. It follows from this that a reduction in the rate of productivity increase after 1913 might well have been anticipated on these grounds alone, and that the rate of increase recorded for the leading three regions between 1880/4 and 1905/9 (roughly 1.25% per annum) might have been a better indication of the long run potential of the German agricultural sector than the more rapid increase achieved by the sector as a whole over these years. If the overall growth rate were to fall back to this level, then this would take 0.3% per annum off the growth of agricultural productivity. However, while the eastern German regions were converging, those in the south and south-west were diverging. In 1880/4 productivity in regions 17, 19 and 20 (Bavaria, Baden and Württemberg-Höhenzollern) had been 24%, 23% and 12% below the national average, respectively. By 1905/9 these gaps had increased to 32%, 35% and 33%. This created new opportunities for convergence if the performance of these lagging regions could be improved. But the challenge was a different one compared to that presented by the provinces east of the Elbe. These had had structural advantages compared to the rest of Germany. Their farms were larger and generally in single units. The land/labour ratio was more favourable than in the other German states. Consequently, when arable yields were brought up to national standards, this produced a rise in the total share of crop production (major roots and cereals) from 33% in 1880/4 to 43% in 1905/9. The share of livestock production remained constant at about a third, as did the share in the total agricultural labour force. Yield convergence, brought about by the spread of advanced arable technology from the central regions and by improved transport links, was the mechanism by which the east caught up. The south and south-west, by contrast, had smaller farms than the national average and they were more likely to be split up, due to the consequences of the partible

inheritance system practiced in southern Germany.12 There was relatively little land which was uncultivated or under-utilized. The transformation of these regions by modern technology would be a much harder task.13

Figure7 shows the prevalence of small-scale agriculture in the south and south-west. There were three regions where over 80% of the agricultural area was in holdings of under 20 hectares: regions 14, 17 and 18 (Pfalz, Hesse and Baden). In Bavaria (region 13), 64.7% of the land was in farms of less than 20 hectares. In the east farms of this size were relatively rare. In regions 1,2 and 4 (East and West Prussia and Pomerania) the percentage was below 20, as it was in Schleswig-Holstein (region 8). In Mecklenburg, only 12.9% of the land was in farms of less than 20 hectares. The productivity estimates show a strong negative correlation between the levels of net value added per full time labour unit and the importance of small-scale farming. The correlation coefficient for 1905/9 is -0.77, which is a stronger relationship than for 1880/4 (-0.58). This shows that the eastern regions were overcoming their initial disadvantages of remoteness and poor communications, and as a result, they were better able to take advantage of their better farm structure.

12 Conrad (1891) and Miaskowski (1882). 13 The ability of smaller holdings to keep up with larger farms was a concern of contemporary writers: Kutzleb (18850, Auhagen (1896) and Sumpfe (1896).

Figure 7. Small scale farming in German agriculture. The percentage of the total agricultural area in holdings of less than 20 hectares, From 1895 Agricultural Census.

IV. Capital intensity and efficiency. The issue of resource utilization and efficiency is central to German agricultural history between 1870 and 1939. Broadly speaking, the evidence of the interwar period shows a sharp rise in advanced inputs - machinery and fertilizers in particular. Yet, the rate of productivity growth slows down, indicating that these resources were not being used to maximum efficiency. Why, then, was there a drop-off in the efficiency of the agricultural sector after the impressive performance between 1870 and 1913 period? To answer this question, it is again of interest to look at the regional breakdown in the pre-1914 period. The German statistical office organized surveys of agriculture which formed part of the occupational censuses of 1882, 1895 and 1907. These recorded machinery use in German agriculture. This is a valuable source but it has 2 defects. Firstly, there are problems of comparability – the surveys did not ask the same questions and record the same items of farm machinery. This means that the only way to achieve comparability

between censuses is to use those items for which comparable data are available and construct a weighted index using values from contemporary farm costings.14 The indices are then chained together, working backwards from the most comprehensive survey, that of 1907. The second problem is that the surveys recorded machinery use, not machine numbers. So, as an index of capital input there is a possibility of bias if sharing of machinery or joint-ownership is more common in one region than another. Table 2 provides estimates of machinery use in the different German regions, using the regional units previously shown in figure 6. The surveys were used to allocate the total machinery stock, using values from Hoffmann, and express this in relation to the total agricultural area. The results are instructive, even with the caveats expressed in the previous paragraph. The east is shown to be an area with a relatively low level of mechanization, and this did not change that much even as it was catching up in terms of labour productivity. Some eastern regions did show quite large rises in machinery use, but they remained well below regions in the rest of Germany. There were a number of possible reasons for this. Firstly, the east had larger farms and therefore may well have used items of machinery more intensively and more efficiently. Secondly, wages were lower in the east, and so the incentive to substitute machinery for labour was less. The east also had access to cheap seasonal workers from Russian Poland, and this would have been helpful in dealing with peak seasonal labour demands, reducing the need to invest in expensive steam-driven threshing machines, for example. Finally, it is noticeable that machinery use is related to the level of regional industrialization. The highest machinery use in the east was recorded by the industrial region of Silesia. By contrast, Schleswig-Holstein, one of the most advanced agricultural regions but one which had relatively little industry, had a relatively low level of machinery use when compared to other regions in the west and north-west. In this period, much machinery was locally made, and required skilled local workers for repair and maintenance. In the more remote regions, with few industrial centres, such skills were hard to find.

14 From 1882 to 1895 the index includes 4 items: steam ploughs, mowing machines, steam-powered threshing machines, other threshing machines. From 1895 to 1907 it includes these items plus broadcast sowing machines, milk centrifuges and hoeing machines.

Table 2. Estimates of machinery intensity in German agriculture. Total machinery stock in Marks (1913 prices), per hectare of agricultural land.15

1882 1895 1907 A. East 1 East Prussia 46 71 91 2 West Prussia 55 55 70 3 Berlin/Brandenburg 57 67 95 4 Pomerania 33 44 65 5 Posen 33 59 99 6 Silesia 151 153 189 19 Mecklenburg 65 65 68 B. Centre 7 Prussian Saxony/Anhalt 118 152 199 15 Saxony 204 196 217 20 Thuringia 139 173 270 C. West and North-West 8 Schleswig-Holstein. 69 94 121 9 Hannover/Oldenburg/Brunswick 112 228 220 10 Westphalia 272 351 413 11 Hesse-Nassau 105 190 285 12 Rhineland 259 210 256 14 Pfalz 262 344 393 18 Hesse 335 469 408 D. South and South-West 13 Bavaria excl. Pfalz 238 227 257 16 Württemberg/Höhenzollern 109 145 244 17 Baden 127 185 374 21 Alsace-Lorraine 290 221 262 All Germany 131 154 190

But the most surprising result which emerges from this is that German agriculture shows a negative correlation between productivity, as measured by net value added per labour unit, and machinery use per hectare. The coefficient is -0.64 for 1905/9. This paradoxical result is due to the regional split – the eastern regions were achieving good levels of productivity despite relatively low usage of machinery. By contrast, in other German regions, productivity was lower and machinery use was higher. These figures for machinery inputs can be used to derive figures for total factor productivity. These are, however, provisional and illustrative rather than definitive, given 15 Total machinery stock is from Hoffmann (1965); the German occupational censuses provided the regional breakdown; prices of the machinery items came from Krafft (1899) and Lohaus (1911).

the gaps in the data. The main problem is the lack of regional figures for investment in agricultural buildings. This can be estimated using livestock figures, as buildings were mainly used to in-house livestock in the winter months, but this is a poor substitute for a direct survey. A second problem is the lack of information on factor returns, necessary for calculating the weights in a standard TFP calculation. Table 3. Estimates of total factor productivity growth in German agriculture, 21 regions, 1880/4 to 1905/9. Residual

calculation Malmquist DEA

TFP index16

A. East 1 East Prussia 1.82 2.00 2 West Prussia 1.41 1.48 3 Berlin/Brandenburg 1.41 1.31 4 Pomerania 1.44 1.40 5 Posen 1.76 1.48 6 Silesia 1.64 1.60 19 Mecklenburg 0.40 0.67 B. Centre 7 Prussian Saxony/Anhalt 0.52 0.65 15 Saxony 1.42 1.40 20 Thuringia 0.71 0.90 C. West and North-West 8 Schleswig-Holstein 0.85 1.35 9 Hannover/Oldenburg/Brunswick 0.91 1.53 10 Westphalia 0.97 1.66 11 Hesse-Nassau 1.06 1.75 12 Rhineland 0.97 1.39 14 Pfalz 0.74 0.72 18 Hesse 0.92 1.02 D. South and South-West 13 Bavaria excl. Pfalz 0.50 0.56 16 Württemberg/Höhenzollern -0.11 0.16 17 Baden 0.28 0.88 21 Alsace-Lorraine 0.06 0.34 All Germany 0.94 1.15 The first column of table 3 gives the results of a residual TFP calculation for net value added in the German regions, weighting input estimates as follows: 0.55 for labour, 16 The computer program is downloadable at www.uq.edu.au/economics/cepa/deap.htm. Further details are in Coelli (1996).

0.35 for capital (buildings, machinery and livestock) and 0.1 for the arable area. The regional pattern reveals that TFP growth was fastest in the east, with a strong catch-up process in this area (relatively slow growth is shown for the leading regions – 7, 8 and 19), But the south and south-west lagged behind the others, with no evident tendency for catch-up in this area. An alternative method of TFP calculation has been employed by the Food and Agriculture Organisation of the United Nations (FAO) in its 2005 report - The State of Food and Agriculture 2005.17 This uses a computerized “data envelopment analysis” (or linear programming) approach to estimate a production frontier, and then estimates TFP growth as a movement towards this production frontier. The resulting Malmquist TFP index has the advantage of not needing input prices – the factor weights are calculated as part of the estimation process. The results of the application of this method to the German regions are given as a second column in table 3. While these differ in some respects to the figures in the first column, they broadly support the regional pattern shown earlier – TFP growth is fast in the east, and the south and south-west lag. The main difference is that the regions of the west and north-west are shown to have rather better TFP growth than in the first column. Overall the regional pattern of capital use and efficiency raises questions about the ability of German agriculture to sustain the rapid rate of productivity growth achieved before 1914, Structural problems were causing some regions to have difficulty in making effective use of new technology. While growth between 1870 and 1913 had been driven by the convergence of yields in the east, this factor was likely to be less important as yields east of the Elbe were now close to the national average. The weaknesses however remained. V. German agriculture 1914-1939. The First World War represented a dramatic break in the progress which had characterized the German agricultural sector up to that point. The livestock sector in particular had been highly dependent on imported feedstuffs and was heavily run down during the war, with much slaughtering of breeding stock. Even after the war had ended the Allied blockade continued until the peace treaty was signed, and the period of disruption was extended by the hyper-inflation of the early 1920’s and the international tensions which culminated in the Franco-Belgian occupation of the Ruhr in 1923-4. Despite this it might have been expected that German agriculture would return to the highly successful growth path of the pre-1914 period, once the disruptions of the immediate post-1918 period had been overcome. The impact of the war was not entirely a negative one. In particular, the shortage of nitrate for explosive production which had resulted from the British interruption of Chilean exports to Germany, had stimulated the construction of the Oppau plant for the production of ammonium nitrate using the Haber-Bosch process. This removed the last obstacle to the development of an agricultural sector entirely freed from dependence on organic manures. However, the performance of the agricultural sector in the interwar period fell well below that of the pre-1914 period. As figure 8 shows, net value added per head fell sharply in 1914-25 and struggled to recover the 1913 level. The level of productivity 17 FAO (2005).

reached in the 1930’s was still well below the potential implied by the pre-1913 trend. The shortfall is about 26% of estimated potential output for 1934-8. Figure 8. Net Value Added per head in German agriculture, 1870-1938 (1913 prices).18

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What were the reasons for this break with trend? The main factors were on the production side: a slowdown in the rate at which arable yields were rising, and the limited recovery of the intensive livestock sector after wartime and post-war disruptions. The problems of the pig sector were particularly evident when contrasted with the pre-1914 trends. Figure 9 shows total numbers of pigs in German agriculture from the various livestock censuses (the pre-1914 figures are adjusted for the territorial losses at the end of the First World War). The figure also gives cattle numbers as a point of comparison. The figure shows that the rapid rate of increase of pig numbers before 1914 was not maintained in the interwar period. There were substantial losses during the war and

18 These figures are from Hoffmann (1965). Questions have been raised about Hoffmann’s figures, see Fremdling (1988) and (1995). Alternative figures for agriculture are available in Helling (1966) and Ritschl and Spoerer (1997). While these differ in some respects from Hoffmann, the broad conclusion that agricultural productivity did not recover to the pre-1914 trend is not affected.

these had only partially been made up by 1925: total numbers in this year were still 28% below the adjusted 1913 figure. There was a partial recovery to 1933 and relative stagnation thereafter. Figure 9. Livestock numbers in Germany 1873-1937 (adjusted for territorial changes) Log scale

1933

1928

1923

1918

1913

1908

1903

1898

1893

1888

1883

1878

1873

30000

20000

10000

9000

8000

7000

6000

Cattle

Pigs

Cattle

Pigs

The pig sector suffered more than the cattle sector because it was more heavily dependent on imported feed. Cattle were mainly fed on home-produced herbage (fresh grass in the summer, hay in the winter) with some supplementation with cereals to boost milk yield or to increase slaughter weights for beef cattle. Thus, in times of restricted imports, the cattle population could be maintained without much use of cereals, although this would result in a reduction of milk yields and slaughter weights. As pigs were not fed on grass, pork production was much more dependent on the use of cereals for energy and oil-cakes for protein, both of which were heavily imported before 1913. The use of cereals for pig feeding also competed with the needs of the human population, even though the actual crops used were not normally part of the diet of the German household outside wartime conditions. Arable land could be switched from barley, oats and feed-grade wheat to rye and bread-making wheat.

This accounts for the more rapid fall of pig numbers over the 1913-25 period. But the recovery was also a slow one. An important factor was that the recovery of cereal imports was a slow one. As figure 10 shows, imports of these feedstuffs were well below the 1913 figure throughout the interwar period, with the exception of the 1927-29 period. Before 1927, this can be attributed to the lingering effects of wartime and post-war disruption; after 1933 it was an act of deliberate government policy as the German economy moved towards autarchy and reduced dependence on imports.19

Figure 10. Imports of animal feedstuffs, relative to 1913 (1913 =100). Oilseeds include processed oilcake and unprocessed seeds. Cereals include maize, oats and barley.20

1937193519331931192919271925

140

120

100

80

60

40

20

0

Oilseeds

Cereals

Oilseed imports were more robust, as they were partly a by-product of the need for vegetable oils for the production of soap, margarine and other products (the import figures include unprocessed seeds which then yielded oilcake for livestock production as 19 Contemporary German writers were convinced that the problems of the German foreign trade sector in the 1920’s were the result of reparations payments as implemented under the Dawes plan. Sering (1929) provides a strong statement of this view, with particular emphasis on the effect on German agriculture. 20 These are indices constructed using data from the German Statistical yearbooks. These provide constant price import series at 1913 prices to 1925 and at 1928 prices from 1928. Between these years imports are given at current prices and at the previous year’s prices. The series given in the table were produced by chaining these series together. Note also that it would be desirable to include feed-grade wheat imports, but these cannot be distinguished from bread-making wheat.

well as oil after crushing). But even here the recovery to 1913 levels was delayed until 1928, and by 1938 imports were 34% below the 1913 figure. Imports of cereal feedstuffs were under 8% of the 1913 level by 1938. Some falling away from the extremely rapid increase in pig numbers experienced before 1913 might have been expected – there was a limit to the possible contribution of pork to the German household diet – but the reduction went beyond this. It is an illustration of the effects on German agriculture of the deliberate Nazi policy of turning away from engagement with world markets.

Other problems which affected the livestock sector included intense competition from imports in the 1920’s and price controls in the 1930’s. In the mid-1920’s meat imports were extremely high: 360% of the 1913 figure in 1925, and 344% in 1926. This fell off in the late 1920’s and there were further reductions in the depression years. However, prices remained low. In real terms (deflated by the overall price index), beef producer prices were 82% of the 1909/13 average in 1925-29 and 73% in 1934-8; pork prices were 90% of the 1909/13 level in 1925-29 and 69% in 1934-8. The price controls introduced by the Nazi government held agricultural prices down in the 1930’s even when other prices began to rise. The other major contribution to lowered productivity growth came from a fall in the rate at which arable yields were rising. Table 4 provides estimates of the effect on overall production of the major arable crops. The first section compares actual yields to those obtained by projecting forward the 1870-1913 rates of increase. The estimated shortfalls show how far the progress of German agriculture in the interwar period fell below the momentum established between 1870 and 1913. As can be seen, this procedure results in considerable deficits for all the major crops, both in the 1920’s and 1930’s. However, as already noted, the rise in yields before 1913 was influenced by the catch-up process in eastern agriculture, and may well, therefore, have represented the realization of a “one-off” opportunity, as more advanced techniques were introduced into previously lagging regions. A different approach is to interpolate between the five years just before the First World War, 1909-13, and the late 1950’s, by which time West German agriculture was fully restored to normality. This approach yields lower estimates of the gap between potential and actual production, and probably gives a more realistic view of the under-performance of German agriculture in the interwar period. The 1930’s are shown to be a period of relative improvement, and by 1938 yields were back up to the estimated potential line (though it would be a mistake to place too much emphasis on a single harvest). Table 4. Estimated shortfalls in arable crop production in the interwar period (as percentages of the projected total output) A. Using yield projections based on data for 1870-1913 wheat rye barley oats potatoes 1922-29 -21.6 -20.5 -16.3 -13.2 -14.6 1930-38 -16.1 -19.8 -12.2 -17.3 -8.1 B. Using interpolations between 1909/13 and 1956/60

(West Germany only for 1956/60) wheat rye barley oats potatoes 1922-29 -18.3 -18.6 -14.7 -6.2 -9.7 1930-38 -9.0 -14.1 -7.8 -4.9 -0.1

But the improvement in cereal performance in the 1930’s has to be set against a sharp rise in inputs. The use of artificial fertilizers increased (table 5), and usage by the late 1930’s was over 3 ½ times as high for nitrogen, and 2 ½ times as high for potash. The table shows an interesting distortion. On agronomic grounds it would be expected that all three fertilizer inputs would rise at roughly the same rate. This is because their action is complementary: increased use of one fertilizer raises the effectiveness of applications of the others. But the use of phosphate lagged in the interwar period. Nitrogen application rose at 5% per annum before 1913 and 5% 1913-1938; potash application rose 7 per annum before 1913 and 3% 1913-38; but phosphate application increased 6% per annum before 1913 and less than 1% per annum 1913-38. The reason for this is that Germany had little domestic production of mineral phosphate and so this material had to be largely imported. By contrast, Germany was a major producer of mined potash, and domestic supplies of nitrogen were sufficient after the invention of the Haber-Bosch process. So, phosphate use was much more affected by the foreign trade position. As the table shows, phosphate use fell by 39% between 1913 and 1921/22, and recovered only slowly thereafter. Table 5. Use of artificial fertilisers in German agriculture relative to 1913 (1913 =100) Adjusted for territorial changes.21 Nitrogen Phosphate Potash 1921/22 169 61 164 1925/26 216 86 146 1930/32 184 78 125 1934/6 248 109 180 1937/39 366 130 246

Another area where inputs rose strongly in the interwar period is machinery. Table 6 gives the main results of the 3 interwar surveys, including comparable figures for 1907 where these are available. The figures show impressive progress in most areas. Electrification rose threefold between 1925 and 1939. Use of mowing machines rose five-fold between 1907 and 1933. However, closer examination of the figures reveals another distortion: most of the power available to German farmers was stationary. There was high availability of electricity; 189,000 farms had stationary petrol or diesel engines in 1939, but only 55,700 had use of a tractor. This in turn is reflected in the types of machinery that were in use: most of the widely used types were operated in the farmyard which was where the power supplies were situated: grinding mills, milk centrifuges, chaff-cutters, threshing 21 From figures in the Statistisches Jahrbuch für das Deutsche Reich, annual issues, and using the territorial adjustment provided in Sering (1929).

machines. The equipment used in the fields was mostly light and suitable for use with horses, which remained the predominant source of power outside the farmyard. It is evident from the figures that 93% of the sowing machines and 96% of the mowers in use in German agriculture in 1939 were still horse-drawn. The contrast with Britain is a stark one. In Britain in 1940 there were 89 tractors per thousand workers in agriculture; in Germany in 1939 there were just 6.22 One important factor was, once again, the relative isolation of the German economy in the interwar period and even more so in the 1930’s. However, in this case the problem was not so much import restrictions as the existence of conditions which were unfavourable to foreign direct investment. In Britain the tractor industry was transformed by the entry of major North American manufacturers such as Ford and Massey-Fergusson who set up British factories to produce tractors designed for the local market. This did not happen in Germany, in part because of the disruptions of the 1920’s but, most importantly, because after the imposition of exchange controls in 1931, foreign firms were prevented from repatriating profits earned in Germany.

But the comparison with Britain is also instructive in that British agriculture was better placed to take advantage of the new technology of farm mechanization. British farms were larger and more suited to cultivation with tractors. The smaller, split-up holdings of southern Germany were particularly disadvantaged. A further factor which may have had some influence in the 1930’s was that German firms who might have produced tractors were heavily occupied in the rearmament programme. Table 6. Machinery use in German agriculture, 1907-1939 Numbers of holdings using selected items of machinery, by census year (in thousands) 1907 figures adjusted for territorial changes.23

1907 1925 1933 1939 Electric Motors - 644.7 1225.7 1807.4 Steam engines - 14.6 15.3 11.8 Stationary petrol/diesel engines 1.8 92.6 189.3

Tractors (including motorized ploughs) - - 25.1 57.7

Sowing machines (including drills) - 543.7 640.9 806.4

Mowing machines 307.4 1023.4 1338.2 1363.4 Threshing machines (powered) 457.5 - 1119.9 -

Chaff-cutters - 2037.6 2017.4 Grinding/crushing mills 25.6 319.7 508.1 691.5

22 British figures from Brassley (2000) p. 65 and p. 74. The comparison is in fact distorted in favour of Germany: the British figure is for actual tractor numbers; the German figure is for holdings which used tractors, which would be less if there was sharing or joint ownership. 23 Adjustment of 1907 figures from Sering (1929). Other figures are from the Statistisches Jahrbuch für das Deutsche Reich, various annual issues.

Milk centrifuges 295.8 1415.1 1510.1 - It is a puzzle why the very substantial increase in farm machinery which was recorded by the interwar farm censuses did not produce a corresponding gain in agricultural productivity. This puzzle is at least partly explained by the analysis of regional machinery use and TFP trends before 1914, given in the previous section. Parts of German agriculture were already having difficulty making effective use of machinery before 1914. An additional factor was the trend away from involvement in the world market. This section has provided evidence of problems in three major areas: the intensive livestock sector, the use of artificial fertilizers, and the use of machinery. What is apparent from these three examples is that the foreign trade position of German agriculture in the interwar period imposed a series of distortions which may have been small in themselves, but which had a large cumulative effect. This was partly because they impinged on each other, reinforcing the overall impact. Thus, the slow recovery of the pig sector reduced the nutrients available for crop production, and made German agriculture more dependent on artificial fertilizers, which in turn made the distortion imposed by reduced access to phosphate imports more costly. In contrast to the pre-1914 period, when a relatively moderate level of protection still made it possible for German agriculture to develop using modern inputs and importing heavy amounts of animal feed and other materials, between 1918 and 1939 German agriculture had restricted access to world markets, and was forced into a much greater reliance on home-produced inputs. This had a serious effect on overall efficiency and was a major factor in the reduced rate of productivity increase compared to the record before 1914. VI. Conclusions. German agriculture between 1870 and 1939 provides a fascinating and instructive example of an agricultural sector in an economy whose comparative advantage lay in manufacturing not agriculture. For political, social and strategic reasons, Imperial Germany was unwilling to let the agrarian sector decline in the same way that it did in Britain. While this decision has been criticized, it was not a totally irrational choice, given the effect that a further flood of rural migrants would have had on German cities in the 1870’s and 1880’s. It can also be pointed out that if Germany had been even more dependent on imported food, then this would have made it more vulnerable to the threat of a British blockade. In any conflict Germany would have had to rely on the largesse of the Royal Navy in allowing food imports to pass through the North Sea, leaving little choice but to become the junior partner in an Anglo-German alliance. Given this decision, what is remarkable about the pre-1914 German agricultural performance is that the level of protection did not affect the growth of productivity. German agriculture underwent a process of relative decline, but still contributed to the overall growth of the German economy through a high rate of internal productivity growth. However, this rate of progress was not maintained in the interwar period. The analysis presented in this chapter suggests that there were two main factors at work. The first was the trend away from an agricultural sector which was integrated with the world economy and towards one which was largely autarchic and dependent on home-produced

resources. The second was the existence of structural weaknesses which meant that parts of German agriculture were not well-suited to the use of modern farm machinery. In this period, agriculture no longer made a significant positive contribution to the overall growth of the German economy and became instead a drag on Germany’s economic performance considered as a whole.

Appendix A. Pre 1914 German regions Name used in

this study: Includes the following regional units used in German statistical publications:

1 East Prussia East Prussia 2 West Prussia West Prussia 3 Pomerania Pomerania 4 Posen Posen 5 Silesia Silesia 6 Mecklenburg Mecklenburg-Schwerin and -Strelitz 7 Berlin/Brandenburg Berlin and Brandenburg 8 Prussian Saxony/Anhalt Provinz Saxony and Anhalt 9 Thuringia Saxony-Weimar, -Altenburg, -Meiningen and

-Coburg-Gotha, both Reuβ and both Schwarzburgs 10 Saxony Saxony (Kingdom of) 11 Schleswig-Holstein Schleswig-Holstein ,Hamburg and Lübeck 12 Hannover/Oldenburg/

Brunswick Hannover, Oldenburg, Brunswick and Bremen

13 Westphalia Westphalia, Waldeck and both Lippes 14 Hesse-Nassau Hesse-Nassau 15 Rhineland Rhineland 16 Hesse Hesse 17 Bavaria excl. Pfalz Bavaria excl. Pfalz 18 Pfalz Pfalz 19 Baden Baden 20 Württemberg/Höhenzollern Württemberg and Höhenzollern 21 Alsace-Lorraine Alsace-Lorraine

Appendix B. Productivity in German agriculture. Estimates from regional agricultural accounts in 1913 prices, 95% confidence intervals in brackets. Net Value Added per FLU (Full-time Labour Unit) 1880-4

Marks 1893-7 Marks

1905-9 Marks

East Prussia 480 745 934 West Prussia 648 923 1078 Pomerania 731 1001 1222 Posen 852 1175 1433 Silesia 636 891 1179 Mecklenburg 550 765 960 Berlin/Brandenburg 1089 1356 1388 Prussian Saxony/Anhalt 1145 1323 1709 Thuringia 779 1075 1136 Saxony 579 865 834 Schleswig-Holstein 524 798 769 Hannover/Oldenburg/ Brunswick

535 761 757

Westphalia 510 691 667 Hesse-Nassau 480 791 699 Rhineland 789 1052 1395 Hesse 594 641 661 Bavaria excl. Pfalz 517 631 635 Pfalz 685 949 1016 Baden 1267 1442 1716 Württemberg/Höhenzollern 750 1029 1088 Alsace-Lorraine 596 609 676 Germany 672 855 982 References. Auhagen, H. (1896), “Über Groβ- und Kleinbetrieb in der Landwirtschaft”, Landwirtschaftlicher Jahrbücher, 25(1), pp. 1-57. Brassley, P. (2000), Output and technical change in twentieth-century British agriculture”, Agricultural History Review, 48, pp. 60-84. Broadberry, S.N. (1997), “Anglo-German productivity differences 1870-1990: a sectoral analysis” European Review of Economic History, 1, pp.247-267. Coelli, T. (1996), A guide to DEAP Version 2.1: a Data Envelopment Analysis (Computer) Program, CEPA Working Paper 96/08. Conrad, J. (1891), “Bodenzersplitterung” in Handwörterbuch der Staatwissenschaft vol.3 [Jena]. FAO (2005), The State of Food and Agriculture 2005 [Rome: Food and Agriculture Organisation of the United Nations]. Frauendorfer, S. von (1956), “Naturwissenschaften und Technik als dynamisches Moment”, Zeitschrift für Agrargeschichte und Agrarsoziologie, 4, pp. 113-127.

Fremdling, R. (1988), “German National Accounts for the 19th and Early 20th Century. A Critical Assessment”, Vierteljahrschrift für Sozial- und Wirtschaftsgeschichte, 75, pp. 339-357. Fremdling, R. (1995), “German National Accounts for the 19th and Early 20th Century”, Scandinavian Economic History Review, 43, pp.77-100. Grant, O. (2002), Productivity in German Agriculture: estimates of agricultural productivity from regional accounts for 21 German regions: 1880/4, 1893/7 and 1905/9. Oxford University Discussion Paper in Economic and Social History, available at http://www.nuff.ox.ac.uk/Economics/History/ . Grant, O. (2003), ‘Few better farmers in Europe?’ productivity, change and modernisation in East-Elbian agriculture 1870-1913” in Eley, G. and Rettalack, J. eds. Wilhelminism and Its Legacies: German Modernities, Imperialism and the Meaning of Reform, 1890-1930 [New York: Berghahn]. Grant, O. W. (2005), Migration and Inequality in Germany 1870-1913 [Oxford: OUP]. Helling, G. (1966), “Zur Entwicklung der Produktivität in der deutschen Landwirtschaft im 19. Jahrhundert, Jahrbuch für Wirtschaftsgeschichte pp.129-141. Hoffmann, W. (1965), Das Wachstum der Deutschen Wirtschaft seit der Mittel des 19. Jahrhunderts [Berlin]. Institut International d’Agriculture (1915), Annuaire International de Statistique Agricole 1913/14. Krafft, G. (1899), Lehrbuch der Landwirtschaft auf wissenschaftlicher und praktischer Grundlage ; Bd. 4, Die Betriebslehre [Berlin: P. Parey]. Kutzleb, V. (1885), “Ist der bäuerliche Wirtschaftsbetrieb mit dem der großen Güter konkurrenzfähig: Beiträge zur Kenntnis des bäuerlichen Wirtschaftsbetriebs”, Landwirtschaftlicher Jahrbücher, 14, pp. 401-448. Lohaus, H. W. (1911), “Die Kolonie Nikolausdorf”, Landwirtschaftlicher Jahrbücher, 40, pp. 83-171. Miaskowski, A. von (1882), “Das Erbrecht und die Grundeigentumverteilung im deutschen Reich”, Schriften des Vereins für Sozialpolitik, 20. Mitchell, B.R. (1981), European Historical Statistics 1750-1975, 2nd ed. [London: Macmillan]. Ritschl, A. and Spoerer, M. (1997), “ Das Bruttosozialprodukt in Deutschland nach den amtlichen Volkseinkommens- und Sozialproduktsstatistiken 1901-1995”, Jahrbuch fur Wirtschaftsgeschichte, 2, pp. 27-54. Schultz, T.W. (1964), Transforming Traditional Agriculture [New Haven: Yale University Press]. Schremmer, E. (1988) “Faktoren, die den Fortschritt in der deutschen Landwirtschaft im 19. Jahrhundert bestimmen” Zeitschrift für Agrargeschichte und Agrarsoziologie, xxxvi (1), pp.37-77. Sering, M. (1929), Germany under the Dawes Plan [London: P. S. King] Stumpfe, Baron von (1896), “Über die Konkurrenzfähigkeit des kleinen und mittleren Grundbesitzer gegenüber dem Groβgrundbesitze”, Landwirtschaftlicher Jahrbücher, 25(1), pp. 57-113. Voelcker, A. (1883), “Manure”, Encyclopaedia Britannica, xv, pp.505-512.