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Farm size study
[JUNE
30, 2003]
URBANA -- A recent
study by University of Illinois Extension answers the often-asked
question: Do large grain farms have lower per acre costs than
smaller grain farms? The answer, according to Gary Schnitkey, the
study's co-author, is yes, up to about 1,000 acres.
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"We used 2002 data from farms
enrolled in the Farm Business Farm Management Association
record-keeping program," explained Schnitkey. "These reports give
yields, revenues and costs on a per-operator-acre basis. Farms have
to pass screening procedures to ensure that the data are correct.
And the farms also had to receive the majority of their farm income
from grain operations."
Schnitkey and co-author Dale
Lattz, both U of I Extension farm management specialists, found that
per acre costs for farm sizes in categories less than 800 to 1,200
acres are higher than for larger farm size categories.
"Average total costs are the
same for farm sizes over 1,200 acres," said Schnitkey. "Once farms
reach 1,200 acres, we find no evidence that per acre costs decrease
with increases in farm sizes. We have few observations for farms
greater than 6,000 acres. Additional observations may suggest that
large farms have cost advantages. However, in our opinion, it is
unlikely that farms between 4,000 and 10,000 acres have significant
per acre cost advantages over farms between 1,200 and 4,000 acres."
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The data does not support one
commonly held belief -- that large farms have better purchasing
power than smaller farms.
"Our data does not support this
contention, because costs are relatively constant across farm
sizes," said Schnitkey. "In particular, crop costs remain constant
across larger farm sizes, suggesting that farmers do not have
purchasing power with fertilizer, seed or pesticide inputs."
Farms do have incentives to
expand, but these are not due to cost advantages, said Schnitkey.
"The incentives are due to
volume considerations," he said. "As long as revenue is below total
costs and per acre costs do not increase, farms have an incentive to
expand. The only way expansion will stop is if costs increase as
farm size increases."
The
report is available on U of I Extension's farmdoc website under
"Farm Economics: Facts & Opinions":
http://www.farmdoc.uiuc.edu/manage/
newsletters/fefo03_10/fefo03_10.html.
[University
of Illinois news release]
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