Farmers depend on local businesses and services to stay in business. They need veterinarians, suppliers, and others in order to do their work. A larger farm will add to the infrastructure that makes it profitable for the supporting industries to stay in an area. The best example is the availability of large animal veterinarians. There must be enough large animals within a given geographic area to support a veterinary practice. As the number of small dairy herds decline, it becomes increasingly difficult for veterinary practices to justify remaining in the area. The same can be said for other essential support industries that require a large volume of business to remain competitive and profitable.
Farms are not getting larger just to get larger. Sure, some farmers desire to be the largest operation on the block, but there is a deeper economic reason for farms becoming larger–lower costs of production increase net income. Large farms can produce milk cheaper than smaller farms for a number of reasons:
Some farms have grown because they are operated by better managers. This is not equivalent to saying that all small farms are run by poor managers; many small farms are operated by excellent managers. But, the fact is that, on average, larger farms tend to have better managers. Putting all these factors together results in a real economic advantage for larger farms.
Are large farms necessary? Probably not, because most people in the United States are wealthy enough to pay more for food produced on smaller farms. But, this can only occur if we are willing to exclude agriculture from capitalistic competition. This in turn means that we declare publicly that agriculture is somehow special and needs protection in order to survive. It also means that we give up the export market because it is doubtful that all other countries will limit the size of farms. The countries that embrace larger farms will gain the cost of production advantage and thus capture the international market.
It is also likely that returning to small farms will cut off the future potential growth in nonfood uses. Increases in agricultural productivity, which is associated with larger farms, allows agricultural production to occur with fewer resources. The resources which are then saved can be used for improving the well-being of the poor, the quality of the environment, and the amenities of everyday life for the average American. Thus, restricting large farms means that society is giving up some tangible benefits. The questions become: How much are we willing to pay, and who are we willing to tax to pay for it?
Agriculture is a significant component of Ohio's overall economy. The food and agricultural segment of the economy accounts for about 11% of the State's gross product. The segment also accounts for about one out of every six jobs in the State.
Farming and production agriculture contribute directly to the overall economy of Ohio. Estimates of multipliers (magnitude of impact) for output, value added, income, and employment for Ohio by farming type are available. The output multiplier for Ohio's dairy farms is estimated at 1.87, and the value-added multiplier for dairy farms is 2.61. In addition, the income multiplier is 2.12, while the employment multiplier for dairy farms is 2.25. Each multiplier has a similar interpretation. The output multiplier indicates that for each $1 change in final demand from dairy production, Ohio's economy-wide output would expand by a total of $1.87. Similarly, the employment multiplier of 2.25 means that each $1 million change in Ohio's dairy farm output resulting from a change in final demand generates approximately 2.25 full-time jobs in the entire economy of Ohio.
When it comes to being concerned about the impact that new dairy production has on milk prices at the farm level in Ohio, we have very little to be concerned about if the new milk is finding a home as new product demand in all classes of milk. If the new milk is coming in and being priced only at the lowest value, then the impact on the price a dairy farmer receives is somewhat larger. The key question to be addressed is whether or not the benefits of the additional dairy animals and associated dairy industry in the neighborhood are worth the cost in terms of a marginally reduced milk price. Only dairy farmers and their neighbors can answer this question.
Advances in computer technologies and management practices have created large economies of scale in dairy. This is not to say that small dairy farms must all vanish, but on average, larger farms are more efficient in their use of land, labor, and capital. Whereas the national dairy market expanded by 40% over the last 30 years, milk production in Ohio has remained stagnant at 4.4 billion pounds. The dairy industry in Ohio, as a whole, is not competitive with some other areas of the United States given the industry's current structure. Large portions of our dairy infrastructure could collapse unless additional milk is produced in this State. The infrastructure of dairy veterinarians, equipment supply firms, feed manufacturers and dealers, consulting nutritionists, agricultural lenders, etc., serves dairy farms of all sizes. Thus, the survival of our small dairy farms rests in part on the ability of large dairy farms to establish themselves in Ohio.
The total economic impact of milk production and processing has been estimated at over 4.5 billion dollars per year in Ohio. This economic activity generates an estimated 400 to 500 million dollars per year in taxation (Federal, State, and local income taxes, excise taxes, property taxes, etc.).
We commonly think of agriculture on the individual farm level. This reflects the cultural aspect of farming. But, from an economic perspective, the vitality of an industry is determined by output, not by individual farms (which are considered an input). Restricting the size of farms ultimately means less output and the associated less economic activity because production of milk will move into areas with lower costs of production. Keeping larger farms out of Ohio, assuming that all other states and countries will not restrict farm size, will lead to a constriction in the size of Ohio's agriculture.
It is important to remember that today's average farm size in Ohio is comparable to that of a large farm existing 25 to 50 years ago. Thus, it is incorrect to say that Ohio has done well without large farms. The definition of a large farm has changed. A more meaningful way of thinking is: Would the majority of Ohioans and farmers be better off if we had frozen the farm sector at its 1940 configuration?
First, dairy farmers are interested in locating in our area because the natural resources are well suited to dairy production. Water, generally of good quality, is plentiful. The area produces (and exports to other states) a large amount of grains and livestock feed. This extensive crop production allows for a complementary relationship with livestock production where nutrients in the animal manure are regarded as organic fertilizer for the crops.
Second, the area is deficient in milk (processes more milk than produced) and must import milk from adjacent states to supply its processors. Thus, dairy markets within the tri-state area are generally considered excellent.
The third factor is the quality of life that can be enjoyed in our region. The tri-state area is somewhat unique in that large agricultural tracts of land are relatively close to large urban centers and the myriad of activities that they offer, such as professional sporting events, cultural centers, etc.
Maurice L. Eastridge, Professor, Department of Animal Sciences, The Ohio State University
Suzanne Steel, Director of Communications, Communications and Technology, College of Food, Agricultural, and Environmental Sciences, The Ohio State University
Thomas Sporleder, Professor, Department of Agricultural, Environmental, and Development Economics, The Ohio State University
Normand St-Pierre, Associate Professor, Department of Animal Sciences, The Ohio State University
Cameron Thraen, Associate Professor, Department of Agricultural, Environmental, and Development Economics, The Ohio State University
Carl Zulauf, Professor, Department of Agricultural, Environmental, and Development Economics, The Ohio State University
All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status.
Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension.
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