Farming Magazine - May, 2012

COLUMNS

Opinion: On the Farm, Does Size Matter?

An agricultural forum for the progressive farmers of the Northeast.
By Martin Harris Jr.

Students of human history tell us that government in the modern sense didn't exist until the Agricultural Revolution 8,000 years ago, and that our Cro-Magnon forebears living in caves managed to hunt and gather pretty much without bureaucracies, but that Middle Easterners established kingships and tax collectors as soon as they figured out how to grow grains and domesticate livestock. Then, 98 percent of the population farmed and the ruling 2 percent lived off their production. Today the numbers are reversed, but the economics remain the same. The Latin question "Cui bono?" or "Who benefits?" is 2,000 years old and still relevant.

More recently, the argument has developed new themes alongside the old ones. It's always been the concern of consumers that they pay producers as little as possible, which explains why the Pharaoh hired Joseph to confiscate and store grain in surplus years so prices for the nonfarming/nonproducing 2 percent wouldn't rise in shortage years, and today's urbanite authors, part of the now 98 percent, profit by selling each other books entitled "Food for People, not for Profit." Up through medieval times, farming was a no-pay serf occupation, which explains why our ancestors invented the "Stadtluft macht frei" slogan (city air makes [you] free) and, when they could, escaped to the new cities to become higher-income nonfarmers. No one farmed voluntarily until the then-unusual notion of actual private party land ownership gradually emerged during the Middle Ages and "freemen" villeins began farming for profit, not for baron fear. As producers slowly shook off the serf mindset, they developed their own slogans of economics and freedom, but, as they almost always occupied lower rungs of political clout, they were prudent enough to speak more of liberty for the yeoman agrarian (a little Jefferson there) than of profit for the capitalist planters. During these centuries, some of the former serfs turned urban merchants were amassing first wealth and then rural estates on which they could play at their former labors, and the phrase "gentleman farmer" logically emerged. Now - and this is a truly new theme - a sense of economic conflict between the so-called "real" farmers and the part-timers/weekenders/rural gentry has sprung up, and one new subtheme is that the latter, who, we're told, farm for the love of it and not to make a living from it, are damaging the economic prospects of those who, in a typical marginal oversupply/underprice commodity market environment, see their own farmgate returns reduced by any amount of "extra" commodity offered for sale, whether at beef auctions, farmers' markets or direct-to-supermarket contracts. It doesn't help that we have no statistics to prove or disprove this seemingly logical supply-demand price argument. The Internet offers more than 2 million hits in response to a "part-timers versus full-timers" keyword input, and for the first few dozen pages, not one actually addresses that question. Maybe that's because it's complicated.

After all, the vast majority of "full-time" farmers in the U.S. derives a majority of its household income from off-farm jobs, which makes the rural household unit as "part-time" in concept as the urbanite unit growing veggies (and now chickens, too) on the apartment balcony. Farm subsidies in various forms - deficiency payments, cropland idling, use-value land taxes - are as available to the weekenders as to the 80-hour-week dairymen, and are enjoyed by both wealthy urbanites who own but don't personally operate farmland that produces large commodity outputs and by non-wealthy "small farmers" who own and operate, but in the overall stats don't comprise a large fraction of total commodity usage by the 98 percent, which neither owns nor operates, just buys its needs at retail, and, of course, always complains about price. Ag watchers who keep tabs on such things seem to agree that various versions of the Pareto Principle prevail: 20 percent of the farms produce 80 percent of the commodities for urbanite consumption; overall, farm income is 20 percent "farm," 80 percent "nonfarm"; commodity production is 80 percent higher-tech based, 20 percent more consciously organic/nonchemical/nongenetically modified; 80 percent of it moves from farmgate to checkout aisle via traditional corporate commercial channels, 20 percent now moves through self-labeled organic food outlets and farmers' markets; and so on. But even in the absence of statistical proof, most "real" farmers, when asked, profess the belief that the "hobbyists" (their label) negatively affect their pocketbooks.

In the gently rolling countryside that once supported large numbers of "real" but small-scale-by-modern-standards farms, there are few large, full-time farms but lots of part-timer operations, just as described in the construction feature in this issue. With a surplus of farmland resulting from ever-increasing per-acre yields, the "serious" commercial farms can stay on the flatlands and off the hills, and they do. The pre-owned barns, and there are lots of them, now mostly produce small crops of commodities ranging from Black Angus and Charolais beef (and calves for feeders and finishers elsewhere) to tobacco, hay, corn, even a bit of organic wheat and gift shop cheese, as well as the usual summertime offerings ranging from green beans to tomatoes, okra to sweet potatoes, showing up at farmers' markets and in dedicated supermarket aisles. Is the sum effect of these commodity trickles into the marketplace damaging the incomes of "real farmers?" Statistically, we don't know.

In theory, any addition to total supply reduces market clearing price proportionately, assuming demand remains constant. That's what Adam Smith taught. He also wrote on economies of scale, differentiation of labor and specialization all increasing productivity and, by reducing production costs, enabling lower consumer prices. In that sense, even on the farm, size matters: a larger production setup can use its investment in land, equipment and labor more efficiently than a smaller one. But it matters less when competitors don't care much about reducing production costs because their buyers aren't quite so price-sensitive as Mr. Smith always assumed. These buyers value such qualities as the organic label, the custom or niche product, the local origin, even the exercise option in pick-your-own, and are quite willing to pay above the commercial retail price for the (to them) better-than-commercial product. By that measure, size doesn't matter: "real" farmers shipping onto the generic commodity market face competition in the form of additional substantial contributions into an already marginally oversupplied market, from their fellow "real" farmers, and not from part-timers (or even some full-timers) aiming their specialized and typically small-scale production not at the generic commodity market but at the diversified and constantly changing custom/niche market. There's not much statistical proof for these propositions, but there is confirmation of a sort in what an interested observer might see and read. It's most visible in the beef sector.

Anyone traveling through the rolling hill country of the Appalachian foothills, east or west side, anywhere from North to South, can't help but note over only a few years the increase in small beef and cow-calf operations: in herds typically around the two dozen size-range, they must have (humble scribe guess) tripled in the numbers of relatively modest acreages and, typically, semi-obsolete barns so used. Same for the Ozarks, the Wisconsin and Indiana hills, most of Pennsylvania, and even the tractor-and-hay-wagon-capsizing hills of West Virginia. All that new beef, or its progeny, goes to market within a few years; and yet, nationwide beef price futures, at $1.25 per pound, are so high they're actually profitable at the farmgate. Here's the January 21 2012 Wall Street Journal quote: "'There just aren't enough cattle to go around,' said John Roberts, director of marketing at Northern Cattlemen, an industry group. Meat eaters already are seeing higher prices, with the retail price of beef rising faster than any other major food category in 2011" and so on. Typically, the urbanite-oriented Journal is more concerned about retail-consumer cost than about farmer-producer profit, and maybe that's why a little beef-price history that might have been offered to readers isn't. (The profit worry gets into print when it's corporate: thus, food retailers Smucker and Kellogg, losing food sales from consumer resistance to up-pricing attempts got sympathetic coverage on February 12, but the supposed "root cause," higher peanut and corn prices at the farmgate, earned no applause for growers in the same column inches.) As for all-time high beef prices: maybe not.

More accurately, definitely yes in nominal dollars and cents, but definitely no in inflation-adjusted prices. In 1952, the year the USDA started keeping track of the beef numbers which have recently shrunk to all-time lows (even with lots of new part-timers growing them), the historical statistics of the U.S. Table K-214-225 says, farmgate beef was at 30 cents per pound. The Economic History calculator says that it would take $2.46 now to equal the purchasing power of 30 cents then. Thus, the present $1.25 is about half of what it "should" be. Maybe that little example explains why most sectors of farming were a lot more profitable then, because retail food prices were higher then than they are now. Even though the recent remarkable increase in part-timer production is sometimes blamed, the actual cow-number stats - lowest since 1952 - are the more likely "culprit" (from the urban-consumer/cheap-food-entitlement point of view) than the "benefactor" (from the actual producer, full-time or part-time, profit-at-the-farmgate point of view) and the Journal does, in fact, properly report on the "root cause" for the decline in cow numbers and the ensuing beef shortage at the farmgate: the multiyear mid-U.S. drought and ensuing feed shortages forcing growers to reduce herd sizes. The nationwide overall beef herd count wasn't helped much by the substantial growth in part-timer activities, in rainier parts of the country, over these same recent years. The "Does size matter?" question, it turns out, isn't about individual farm size; it's about nationwide herd size. When that measure of supply goes down, just as Smith wrote, price rises. Producers in other commodity sectors might well take note.

The author is an architect and former farmer.