Conventional wisdom says as a farm operation increases in size, it also increases in efficiency, thereby lowering cost per acre. But is that actually true?
University of Illinois ag economists Bradley Zwilling, Brandy Krapf and Dwight Raab punched the numbers and found conventional wisdom wasn’t necessarily a lock in this instance.
“The data at hand indicates that per-acre costs does vary with farm size, but larger farms do not always lead the way in terms of lower cost per acre,” they write in a recent farmdoc daily document.
The researchers looked at various input costs of farmers in northern, central and southern Illinois. They split farmers into three groups – 1,200 to 1,999 acres; 2,000 to 2,900 acres; and more than 3,000 acres. Here are some highlights of what the researchers found.
- In northern Illinois, larger farms paid more for fertilizer and cash rent but less for pesticides, seed and machine depreciation.
- In central Illinois, large farms paid less for fertilizer, pesticides, machine depreciation and cash rent, and about the same for seed.
- In southern Illinois, large farms paid more for fertilizer and cash rent, about the same for seed and less for pesticides and machine depreciation.
“There are many different management styles,” the economists note. “The least-cost producer strives for the lowest per acre cost, while the producer seeking the greatest return on their input investment will spend input dollar to reap the greatest revenue return for those dollars. Review your input costs to see if you might be 'spending a dollar to make a dime' and evaluate where you have the opportunity to pare costs without affecting your bottom line.”
For more information about this study, visit http://farmdocdaily.illinois.edu/2016/01/managing-on-thinner-margins.html.