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AGEC 407 - Farm Planning and Financial Management

•Trends in agricultural production

•Why is the relevant to farm managers?

•Today’s topics:

•Farm Size

•Technology Adoption

•Economic impacts

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AGEC 407–Trends in agricultural production

•Why drives farms to get larger?–Reduce costs

–Increase profits

–Adopt new technologies

•Why are larger farms able to increase profits?–Sell more units of production

–Spread fixed costs over more units

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AGEC 407–Trends in agricultural production

•Other strategies for farms to increase profits?–increase value of product

–e.g. value added or niche marketing

–increase efficiency (reduce costs per unit)•Scale-neutral technologies

•i.e. technologies that do not increase fixed costs

•e.g. rBST, intensive grazing

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AGEC 407–Trends in agricultural production

•What forces cause decreased profitability?

–Decreasing profit margins per unit of production

–Decreasing “real” prices for commodities

–Near perfectly-competitive market

•Many firms selling a homogenous product

•Producers are price-takers

•Factors of prod’n are mobile to enter and exit industry

•Firms and consumers have perfect information

–Price tends toward minimum average total cost

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AGEC 407–Trends in agricultural production

•Why do farmers adopt new technology?–Lower costs

–Reduce pollution (may lower costs)

•Why does new technology lower costs?–Substitutes less costly inputs for more costly ones

–capital for labor

•Why do some new technologies lead to larger farm size (scale-increasing technologies)?

–Increases fixed costs

–Spreading fixed costs to minimize total average costs

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AGEC 407–Trends in agricultural production

•Process of technology adoption–Early adopters

•Reap excess profits

•Take some risks?

–Majority adopters•Lower average costs for industry

•Cause price to fall

–Stragglers•Either adopt to increase profits or exit the industry

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AGEC 407–Trends in agricultural production

•Impact of fewer larger farms on rural communities

–Distribution of income•Rural employment

–Change in local purchasing habits

–Concentration of land control

–Nutrient distribution over landscape

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AGEC 407–Trends in agricultural production

•Agricultural policy implications

–Farming is a unique industry

•More closely tied to lifestyle and landscape

–Benefits of larger farms

•Cheaper food (generally, but not always)

•Free up labor for production in other sectors

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AGEC 407–Trends in agricultural production

•Solutions?

–Set minimum commodity prices?

•Will likely accelerate trend to larger farms

–Target small farms for assistance?

•Costly

•May favor inefficiency

•Unfair?

–Let the market rule?

•Will likely change the face of ag. and rural communities