UNIVERSITY PARK, Pa. - By now, most know that the number of farms across the nation is significantly lower than it was just 5 or 10 years ago.
Not coincidentally, the average farm size has increased considerably.
That is, some farms have grown by purchasing the productive assets from those farms that did not survive.
Predominantly, smaller farms are more likely to fail than are larger farms.
Not untouchable. This does not mean, however, that large farms are not in jeopardy.
Indeed, many could provide evidence that a small farm flourished while a neighboring large farm went under.
It simply means that smaller farms have a more difficult time competing in the market and are, therefore, less likely to survive over the long term.
Research out of New York might help to shed light on the reason this occurs and what some potential remedies might be.
Measure of efficiency. Loren Tauer, an agricultural economist at Cornell, analyzed the relative efficiency of New York dairy farms.
His data showed that smaller farms tend to have higher production costs per hundredweight of milk, where production costs serve as a measure of efficiency.
A portion of the difference in production costs is due to “economies of scale.” That is, costs sometimes fall with expansion of production.
The second reason for this difference was that smaller farms tend to be less efficient producers of milk.
This might be due to management’s lack of properly matching inputs in the most productive manner.
Alternatively, larger farms may have access to better or less expensive inputs because they might be able to purchase in bulk, for example.
Statistics. Using statistical techniques, Tauer found that the most efficient 50-cow dairy farms could produce a hundredweight of milk for about $13.61.
Meanwhile, the most efficient 500-cow farms could produce at a cost of $13.03 per hundredweight.
However, average costs were $16.95 for the 50-cow farm and $13.86 for the 500-cow farm.
Therefore, smaller farms are shown to have much more room to lower their production costs relative to larger farms.
Drawing conclusions. The main conclusion drawn from the analysis is that large farms, by nature of their size, are better suited to compete in the market.
However, smaller farms have tremendous potential if they are able to lower their per-unit production costs.
Smaller farms can compete with larger farms if they increase efficiency. This can often be done at little to no cost.
Increasing cow comfort, making sure that lighting is optimal, or monitoring feed rations could increase output at low cost.
Smaller farms might also benefit a great deal through specialization in fewer enterprises or by working together with neighbors to increase buying power.
Be creative when exploring opportunities to increase efficiency.
Check with your county’s dairy or farm management extension agents for details or further ideas on how you can lower your costs without sacrificing production.
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