Land fragmentation, in which a farm operates several separate plots of land, is a common phenomenon in Japan. It is generally agreed that the existence of fragmentation causes cost increment by increasing time and fuel for traveling between plots, or labor hours for water management, weeding, and so on. However its quantitative impacts on these inputs or production cost have not been clarified yet. This article estimated these impacts using panel data of Japanese rice farms. Empirical results reveal that fragmentation increases production costs and offsets economies of size, and that these impacts are especially strong for large size farms. For a long time, the Japanese government has aimed to increase farm size, but as the farm gets larger, emphasis should be switched from increasing size to the settlement of fragmentation, since the harmful effects of fragmentation increase sharply. Moreover, it was demonstrated that fragmentation increases not only fuel inputs or labor hours for planting, weeding or harvesting, as generally accepted, but also managerial labor such as bookkeeping or meeting, and materials such as fertilizers or pesticides, probably caused by substitution effects from labor. The range of fragmentation's impacts is spread beyond our scope. The latter results especially have an important policy implication: the settlement of fragmentation will bring not only the reduction of production cost but also an environmental benefit by reducing fertilizers or pesticides.