It relies heavily on land, which is quite a different resource than capital. Land is expensive, it is impossible to get into agriculture without a massive amount of capital or inheriting the land.
Most of the farmers on the planet wouldn’t be able to turn a profit if they had to pay for the land. A lot of them always ponder the idea of selling their farm and moving to a city, but most of them don’t do it unless they have no other choice. This is because there is a cultural aspect to farming, it is more than a job, the land is sacred, and maintaining it is partly a moral duty for many farmers.
At least, this is how we perceive rurality and traditional agriculture. But things are different for companies that invest in agriculture.
A small farmer has land he inherited from his parents and a family ready to work it. The family makes decisions based on how much workforce is available, they will rely mainly on family members and occasionally on seasonal workers. On a large scale, a family model is a good way to keep unemployment at bay because there will always be work for a family member on a farm.
If you have extra hands on board, you can intensify the production of a crop: spending more time tilling the soil to make it more fertile, raising cattle on fallow fields, adding a processing unit to your farm and making pickles and jam out of your vegetables and fruits. The family farm gives a safety network to those who go work in the cities. In case of an economic crisis, it is always possible to go back to live on the farm, this occurred greatly in Thailand during the Asian financial crisis in the 1990s.
An agricultural corporation works differently, it relies on employees to do the work, and can hire and fire them at its convenience. It will aim for the most profitable farming model, and not necessarily for the most labor intensive or the one that would maximize land use. If the company opts for a highly profitable model that relies on few workers, it means employment goes up, but this is an externality for the company. Unemployment benefits will not be charged to the company.
If a family farm used the same farming model as a company and suddenly had an extra hand (a child coming of age, a cousin coming back from the city…), it would alter its farming technique to fit this extra workforce, generate a higher income, maybe at a lower net profit, but this extra person would have a job.
Moreover, we could argue that family members will work harder for the job than employees. If we look at the tea industry, why should an employee be extra conscientious in his work on a large tea estate? The gardens do not belong to him and his extra work will not be rewarded to the same extent as if it was his own business.
You can gain efficiency in the tea factory, but most of the time spent in tea making is during picking and garden maintenance. The informal nature of family allows for a higher efficiency and a network of small tea producers will generate more value than a tea estate at an equal size. One area in which we could consider economies of scale important is branding. Here, while a large tea estate can brand its own tea and sell it directly to the consumer, this is not the majority of the cases. The brands are most often separated from the tea estates.
A network of family farms, will usually rely on middlemen to collect the tea and sell it on the same terms as the tea estate. Here, we could see a challenge on quality homogeneity, the large tea estate can have an advantage in producing more technical teas (oolong, black, ripe pu-erh).
On the other hand, if we look at Yunnan, all the famous mountains' tea production consists of small producers. Large factories have at best a processing unit in the village, or work with farmers under contract. Yet, we cannot use these famous mountains to support our thesis, because they only constitute a tiny part of the total tea production in Yunnan.
Innovation in tea is not so much based on capital investments and expensive machinery than on experiments and fashion, it is similar to haute cuisine in this way. In order to foster innovation, there needs to be competition and technology transfer. In a village made of small farms, each household will produce tea in a slightly different way. We can expect some households to be better than others and innovate. The competition is strong between the farms because the buyers can easily switch suppliers. On the other hand, the technology transfer is easy because neighbors know each other and the proximity of the houses makes it hard to protect any ‘trade secret’.
The large tea estates will have more tools to protect their ways of doing things from the competition, simply due to the sheer size of the estates and the ability to control who enters the factory. While this protection of special production methods can benefit the estate, it hinders innovation in the industry in the long run. An excellent tea producer in a village will be copied by his neighbors, this will increase the reputation of the village as a whole, and it also pushes the brilliant tea producer to find other innovations in order to stay ahead.