Sorry, you need to enable JavaScript to visit this website.

John Phipps: Why Didn't Farms Get Bigger Faster?

10:37AM Sep 27, 2017

iowa farmland crop tour 2016( AgW )

One of the diverse consequences of a paper trail of articles, blog posts and commentaries is the eventual confrontation with the failure rate of your predictions. Indeed, some predictions are recurring features of my picture of the future, as if I don’t recognize them as failed visions from the past.

One such perennial forecast is that farms such as mine—row-crop grain farms—would undergo rapid merging to become larger businesses. And it’s always just around the corner. Ample evidence for why this could happen persists, but what I foresaw has simply never happened, at least at the speed I anticipated.

To be sure, data indicate grain farms are getting bigger. But compared to the exponential consolidation in beef feeding, hogs, chickens and dairy, my corner of ag is growing huge farms at a glacial rate. Cow-calf and grain operations seem to defy economic logic as they remain dominated by quite modest operations.

Four Decades Of Wrong. Forty years of being wrong tends to make you wonder why. The first excuse to hand is maybe the economic assumptions of larger farms are suspect. During my career, I have read several economic analyses attempting to find optimal sizes for farms such as mine. Researchers struggled in most cases to discover efficiency inflection points at some magic acreage. Even the shape of the acres’ marginal return curve proved tough to establish. 

It could be those studies became victims of recurrent technology interruptions. Guidance changed our productivity abruptly and powerfully, allowing fewer people and machines to cover more acres. This boost might have been most profitable for median-sized, two-to-three-person operations, which kept them competitive. 

Unknown Unknowns. There might be economic forces that afflict larger farms not easily teased out from farm data. For example, I have always questioned the productivity effect of road time for big operations. Really big machines might outgrow the fields they work. A 16-row combine parked at the end of the field is no more productive than a parked eight-row. The increased complexities of farming not just big, but wide, might create more economic drag on our operations than we previously thought.

The willingness of farmers to farm essentially for free confounds economic expectations. Census data confirm how little profit is spread across smaller and even mid-sized farms. Off-farm income keeps those operations viable. Maybe my assumption those farmers would tire of this futility was offset by the fact such growers are constantly being replaced by similarly optimistic successors. To be fair, many small operations based on modest inheritances have solid profit rates, if not volume.

It’s About Land. There are doubtless other contributing causes for the persistence of mid-sized farms, but it seems to me the main reason is our land-ownership structure. Farmers don’t choose to farm as much as they are chosen. Although landowners can and do rent farms based on sheer economics—cash-rent auctions, for example—an enormous portion of leases tweak economics in favor of family or familiarity. 

Moreover, this landowner base is constantly churning and, more importantly, disaggregating. Farms routinely fracture into smaller inheritances, resetting tenancy in the process. It’s exhausting to hold any significant land base together, let alone expand. Farm consolidation is slow because operations reflect land ownership. Absent massive land holdings, enormous farms might be improbable.

Unless farm ownership consolidates, it seems reasonable for expansion to plod along. However, the accelerating loss of rural jobs might trigger faster small-farm assimilation, and autonomous machinery could give sole proprietorship new meaning. 
But keep in mind my prediction record.