Monday, September 30, 2013

Why competition is unsustainable

Large farms now dominate crop production in the United States. Although most cropland was operated by farms with less than 600 crop acres in the early 1980s, today most cropland is on farms with at least 1,100 acres, and many farms are 5 and 10 times that size. Meanwhile In 1987, the midpoint dairy herd size was 80 cows; by 2007, it was 570 cows. The change in hogs was even more striking, from 1,200 hogs removed in a year to 30,000. This long-term shifts in farm size have been accompanied by greater specialization—beginning with a separation of livestock farming from crop farming in the latter half of the 20th century. For instance in 1900, there were dairy cows and hogs on three-fourth of the farms, while in 2005 only one farm in twenty had either hogs or dairy cows. This allowed crop farmers could devote more time to crop production, invest in crop production and gradually increase yields and acreages[i].

Larger crop farms perform better financially, on average, than smaller farms. The difference is mainly in the cost of production. The larger farms don’t have higher revenue or yields per acre, but they simply have lower costs or as expressed by a report from USDA: “larger farms appear to be able to realize more production per unit of labor and capital. These financial advantages have persisted over time, which suggests that shifts of production to larger crop farms will likely continue in the future.” Their research shows that farms with more than 2,000 acres spend 2.7 hours of work per acre of corn and have cost for equipment of $432, while a farmer with 100-249 acres will spend more than four times as much labour and double the amount for equipment[ii].

At he same time, the number of production and marketing contracts to govern the sale of products has increased, which also acts as a driver for increased size of farms. Contracts covered 32 percent of United States crop production in 2011, compared with 23 percent in the mid-1990s. Larger operations are more likely to use contracts, which can reduce the price and marketing risks faced by farmers[iii]. The same report, Farm Size and the Organization of U.S. Crop Farming, also explains that it is cost saving that is the main driver for the use of GM crops. By and large, similar developments are seen in other parts of the world, e.g. in Sweden 1927 there were 350,000 farms having an average of 4 hogs, while 2010 there were only 1,700 farms having hogs and they had an average of 1,900 hogs[iv].

Agriculture suffers from a paradox which many outside of the sector is not aware of and even fewer understand. The secretary of agriculture of the United States wrote in his annual report 1910 that “year after year it has been my privilege to record ‘another prosperous year in agriculture’”. What has been called a golden age for American agriculture, the period between 1900 and 1914, was a period of almost no growth in the sector. Output per worker increased with only 1 percent between 1900 and 1910. And total farm output only 8 percent. Meanwhile the population increased by a whopping 21 percent. The result of this was better prices for farmers and thus the prosperous years.

Conversely in the 1950s, agriculture output increased in a rapid pace, and all of it as a result of increased agriculture productivity. However, the decade is remembered as a time of hardship for most farm families. Input prices went up and farm product prices fell. A million and a half farm families ultimately gave up farming in this decade as they couldn’t make ends meet. Those that survived were of course the more advanced and commercially successful farmers, which could buy up the land from those that lost out. A similar period came in the 1980s when productivity grew with 3 percent annually, while product prices fell, input prices and interest rates soared. “in term of agricultural development for the national economy the decade of 1980s was a huge success; in terms of the financial well-being of most farmers it was an economic nightmare” writes Willard W. Cochrane[v].

By and large farmers are stuck in a treadmill. They are forced by competition to increase productivity, and the increased productivity leads to lower prices. Product development and innovation which allows industrial companies to stay out of a similar treadmill is taking place in the subsequent chains in the food chains, among food processors and retailers. And even there, there are much less elasticity in food consumption than for most other products. The fact that “people will always need food” is a small comfort for the farmer who can’t compete. This treadmill is the reason for the enormous pace in increase in size and productivity in farming. The vanguard farmers will constantly develop and improve and mostly increase in size, at the expense of their less successful colleagues.

For farmers who can’t participate in this stiff competition there is no way out – or rather there is only the way out – get out! This is the fact for a group of farmer with similar conditions. But ultimately it works in the same way globally, where all farmers compete with each other. Some production disappear all together. In some parts of the world the available nature resources are clearly limiting the possibilities for large scale farming. Compare for instance the conditions for a farmer growing grain in a traditional agriculture areas in Europe. The landscape is varied and roads, rivulets, hills and not the least buildings make fields small. Because of scarcity of land, land prices are also high and not determined primarily by agricultural productivity. The farmer will end up with a small farm and the size of machinery can never be the same as on the Great Plains. Those farmers can never produce grain for the same costs as their competitors in United States, Russia or Argentina, even if they can intensify production and get higher yields per hectare.

Of course, for economic development at large, this constant productivity increase in farming sets free resources that are used in other sectors. It is quite clear that reducing the proportion of workers in the farm sector from eighty percent to, say, twenty percent was a precondition for a lot of modern developments, including both good and bad developments. But one might wonder if there are advantages to continue this process in an endless treadmill? But “enough” is a word that doesn’t really exist in the language of economist, or politicians for that matter.

The treadmill is both driven by specialization and drives further specialization, filling each area with just one or two crops or huge livestock operations. The economic and social implications are huge, but the environmental implications are even bigger. The large scale landscapes are stripped of variation and bio-diversity, it doesn’t produce the eco system services we need and we will have to produce them elsewhere at high costs. The systems also cost direct and indirect damages on nature which have to be compensated for.

This model has replaced most local reproductive systems and energy with a linear model, an industrial model of production. This model is part and parcel of the success and therefore the agriculture treadmill och unlimited competition will never be sustainable. It leads us further astray.

[i] Farm Size and the Organization of U.S. Crop Farming, ERR-152, Economic Research Service/USDA
[ii] Farm Size and the Organization of U.S. Crop Farming, ERR-152, Economic Research Service/USDA
[iii] Farm Size and the Organization of U.S. Crop Farming, ERR-152, Economic Research Service/USDA
[iv] Hållbarhet i svenskt jordbruk 2012, SCB 2012
[v] The Development of American Agriculture, Willard W. Cochrane, University of Minnesota Press 1993


  1. In nature "competition" over scares resources leads to healthy diversity, in current economy it leads to unhealthy monopolism/oligopolism...

  2. Tom, that is an interesting observation.

  3. Though not entirely true - invasive species establish monopolies that can last for very long.

    Agriculture has many similarities, but while the local flora and fauna finally adapt to the invasive species, humans help agriculture to counterfeit the local flora and fauna.