Farm Size and Span of Control

Two posts in one week…a record!

Thanks to the muse that is twitter, I have another topic I felt was worthy of a post. Michael Pollan shared a tweet on the decline of the small American family farm.

Here is the link to the entire Washington Post article if you are interested.

This actually makes a good topic on management issues in my AGRC 113 course that focuses on issues and institutions in agriculture.

Over the past 50 years, why has farm size increased to the extent that it has?

For one, the productivity gains from new machinery is amazing compared to what farmers were using 50 years ago. Just think of how much more difficult planting would be if you actually had to steer or know when to shut of the individual units! Overall, the innovations in machinery technology have enabled better managers to farm current acres more efficiently. This brings up two managerial concepts, span of control and managerial resources. Through more efficient technologies, managers are able to ‘control’ more acres in the same amount of time. Or, put differently, by using the new technologies, managers release additional managerial resources (i.e. time) that can be used in other areas of the farm. Given the choice set of where these managers could invest this time to get the highest return, some may choose to invest it in farming more land. As more and more farmers make this choice, average farm size increases.

Secondly, as some have pointed out, there are still small farms in the U.S. and elsewhere. What has been evident when looking at the data is a hollowing out of the distribution as some medium-sized farms have decided to exit the industry (or get bigger). Two fact sheets from the USDA help illustrate this point although both are a little old as they use data from the 2007 Census of Agriculture. These fact sheets report farm size as a function of sales, so price increases that occurred during these periods may skew the data somewhat. In the first one, we see that the number of very small farms (less than $10,000 in sales) is growing and farms with sales between $100,000 and $249,999 have declined somewhat. In the second one, we have more info and more questions. We see that the number of farms with sales greater than $250,000 have grown since the 2002 Census of Agriculture, and I think this is good. One possible source for this increase is the decrease in the number of farms with sales between $10,000 and $249,000.

The other factor that might lead to larger farm sizes is the use of mobile technology. With smartphones and tablets now the rule not the exception, today’s commercial farmer is always connected to markets and information that affects their farm and industry. With greater connectivity, managers are only a text or call away from their broker, their herdsman, their combine operator, or their family. This again increases the span of control and frees constraints on managerial time as through this technology, farmers are able to manage the same amount of tasks more efficiently.

There is probably more nuance to it than this, but I have to get back to working on paper.

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Food dollar nonsense

I am constantly reminding myself that I need to write more blog posts, but it seems that something else always distracts from the writing.  Maybe it is just not having a topic that I wanted to write about.  Well, as luck would have it, yesterday I saw a tweet that stoked the fire.

This is one of the kinds of things that really gets me shaking my head. I mean, what’s the point of it? Yes, a loaf of bread in Canada can run anywhere from $1.99 to $4.59, but does that mean a bushel of wheat should be worth $270?

What this tweet misses is the fact that when I want to make a sandwich, I do not want to have to go and find a wheat farmer who has high quality wheat so I can make my own bread. I also assume said farmer doesn’t want to sell me just enough wheat so I can make a single loaf of bread as I do not have the capacity to make 100 loaves at the time. Either way, now that I have all this wheat, I need to mill it into flour. I do not own such equipment, nor do I want to.

What we often forget when we see food dollar comments, is the price for a good (in this case a loaf of bread) includes much more than just the raw input. It includes the costs of coordinating the value chain so a loaf of bread can be in my grocery store when I want to buy one. It includes the costs (and normal profits) for several firms within the channel, including the grain handlers, the millers, the bakers, the transporters, and the grocery stores. So a farmer gets $0.07 for a loaf of bread, which all things considered, seems pretty close. In order for firms to receive (earn) higher prices for their inputs, they need to transform these inputs into usable forms for the consumer and get the inputs to where the consumer wants them. Then, and possibly only then, will farmers receive more than $0.07 for a loaf of bread.