Despite recent consolidation, important agricultural segments in Latin America—most notably sugar, coffee, and livestock and leather—remain fragmented. In Brazil the four largest players in these segments represent only 45, 37, and 17 percent of output, respectively, because small, unproductive, and informal concerns manage to survive. Fragmentation not only limits the ability of agribusinesses to increase their scale (by reducing bargaining power for inputs) but also makes it harder to gain access to financial markets, limits the availability of credit, and raises intermediation costs.

In Argentina, for example, 40 percent of the country’s 500,000 cattle producers maintain herds of fewer than 50 animals. The top...