Great Bend Tribune
Published October 2, 2022
The drought monitor report as of Tuesday, September 27, indicates a bit of stability in our area for severe and extreme drought although extreme drought has pretty much enveloped most of Barton County while things eased a tad to severe where more rain was received so not great conditions for planting wheat is an understatement. Drought conditions in North Central and Northeast Kansas are worsening. The six to ten-day outlook (October 4 to 8) indicates a 33 to 40% chance of above normal temperatures and below normal precipitation. Normal isn’t much. The eight to fourteen-day outlook (October 6 to 12) indicates our area a 60 to 70% chance of above temperatures and 33 to 40% chance of below normal precipitation. Let’s just say wheat planting is at best dicey.
We hear terms like “economy of scale” and “larger is more efficient” when discussing agricultural production and processing. The other side argues just the opposite. So today: “Is bigger better? And “Can an operation be too big?”.
To answer the first question, up to a point yes. This assumes a producer wants to make their living on the farm/ranch and isn’t more of a hobby farm. As a producer you have certain fixed costs for machinery and other parts of capital investment. Your fixed costs are there no matter how much you produce so the more you can produce, the less your fixed costs are per unit of production. And how big you should be is a function of where you are a producer for a variety of reasons. How much production, revenue, can you expect per acre. Dryland acreage in Western Kansas has on average a lower revenue potential than say North Central or Northeast Kansas. The question of how big maximizes efficiency can be a bit tricky to answer. Is an operation too big is perhaps a bit easier to answer.
If a producer can’t complete necessary operations from planting to harvest in a timely manner due to a lack of necessary capital or labor and it’s costing them revenue the answer would be yes. For a variety of reasons, you’re losing potential revenue from a lack of efficiency. This means your revenue decreases and you haven’t minimized costs so you significantly and negatively impacting profits. And as an operation increases in size, it can reach a point where it is extremely difficult to pivot when necessary.
On the other side, the buyers of agricultural products, there is a great deal of concern and investigation into buyers being too big. The trend is for fewer, larger production operations and at the same time fewer, much larger, buyers of agricultural commodities. Locally, compare the 1990s to the 2020s and the significant decrease in the number of co-ops. If you examine the economics and other factors, it makes economic sense to have fewer, larger co-ops. If the consolidations continue, could we reach a point similar to the meat processing industry? There a very few mega-sized processors have a great deal of control over the beef, pork and poultry markets. The result in the minds of many producers, in an unfair advantage to control prices being paid to the producer and when the processors sell to the consumer. For example, Smithfield Foods just agreed to pay a $75 million fine for price fixing in the pork market.
As concentration continues there is a concern that the whole concept of free markets in the agriculture industry may disappear.