Bigger farms economically better?

Data assessment addresses accuracy of notion that larger farms have lower costs.

The notion that larger farms have a different and lower cost structure is widespread; likewise, the idea that larger farms can negotiate lower prices and that they have more acres over which to spread fixed costs seems logical.

Both ideas indicate that, as farms increase in size, the operating costs decrease.

However, the Illinois Farm Business Farm Management Assn. (FBFM) and the University of Illinois department of agriculture and consumer economics recently assessed 2013 data from farms of three sizes — 1,200-1,999 acres, 2,000-2,999 acres and more than 3,000 acres — to determine whether this conclusion is accurate.

The researchers selected per-acre costs for an increasing average farm size (in acres) for farms in northern, central and southern Illinois.

Crop costs

For 2013, total crop costs in northern and central Illinois showed little variance as the farm size increased (Table). Crop costs were higher in southern Illinois for the over-3,000-acre group.

Crop costs determined from Illinois FBFM data were on an accrual basis and included fertilizer, pesticides and seed.

A closer look at each of the components of crop costs revealed some differences in cost per acre as the farm size increased. Northern Illinois had a lower pesticide cost as farm size increased, but that trend did not hold true for fertilizer and seed. Central Illinois had a lower cost for seed as farm size increased, but such was not the case fertilizer or pesticides.

“Contrary to what one might think, the over-3,000-acre group in southern Illinois shows an increased cost for fertilizer, pesticides and seed,” the analysis notes.

Power, equipment costs

The power and equipment costs evaluated included utilities, machinery repairs, machinery hire, fuel/oil and machinery depreciation. The Illinois FBFM used the concept of economic depreciation to more accurately assess depreciation costs than tax depreciation.

Northern Illinois farms had an increasing cost per acre for fuel/oil but a decreasing cost per acre for machinery depreciation. In central Illinois, machine hire costs and fuel/oil costs increased as farm size increased.

Machinery costs tended to decrease as farm size increased.

Power and equipment costs were similar for the 1,200-acre and 2,000-acre groups in southern Illinois, and the over-3,000-acre group had higher costs for all of the components of power and equipment costs.

While the notion that 'size matters' is prevalent, the data from 2013 don't necessarily support that line of thought,” the authors stated. “Develop and nurture the relationships you have with your input suppliers to best manage your farming operation.”
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