U'S' Agriculture: Commercial and Large Producer Concentration and Implications for Agribusiness Segm

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U.S. Agriculture Commercial and Large Producer
Concentration and Implications for Agribusiness
SegmentsAna R. RiosAllan W. GrayPurdue
University
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Introduction

• The structure of production agriculture is
  rapidly changing
• Agribusiness companies tailoring marketing
  strategies to different farm segments

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Introduction (Cont)
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Objectives

• Provide insight into the significance of
  different farm size segments in terms of the
  total number of farms and total agricultural
  sales.

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Objectives (Cont)

• Explore differences in the rate of concentration
  of farms and sales between aggregate and
  commodity specific agricultural production.

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Hypothesis

• Concentration of agriculture differs between
  aggregate and commodity level production
• The rate of concentration is increasing over time
• Concentration in sales is higher than
  concentration in farms

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Data

• 1982 through 2002 Census of Agriculture
• Aggregate agricultural production all
  agricultural products
• Disaggregate agricultural production crop and
  livestock segments

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Data (Cont)

• Crop segments
• Corn
• Soybean
• Wheat
• Cotton
• Potatoes

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Data (Cont)

• Livestock segments
• Hog
• Cattle (including cattle and calves)
• Dairy

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Data (Cont)

• National marketing year average prices for crops
  gathered from the National Agricultural
  Statistics Service (USDA, NASS)

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Data (Cont)

• Census tables used as the data source classify
  farms by
• value of sales (aggregate agricultural
  production)
• size (acres in crop segments and number of
  animals in livestock segments)

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Data (Cont)

• Livestock segments sales per farm category
  obtained directly from the census
• Crop segments sales for each farm size category
  resulted from multiplying crop production by the
  average crop year marketing price

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Methodology Distribution Analysis

• Farms grouped into three market segments based on
  sales
• Aggregate agricultural production sales of all
  agricultural products
• Specific agricultural production commodity
  specific sales

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MethodologyDistribution Analysis (Cont)

• Farm market segments
• Small farms sales below 100,000
• Commercial farms sales between 100,000 and
  500,000
• Large or mega farms sales above 500,000

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MethodologyConcentration Analysis

• Number of producers per farm category and the
  volume of sales represented by this category
• Theils entropy measure of concentration

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MethodologyConcentration Analysis (Cont)

• Given an agricultural activity with n farm
  categories, let ?i represent the share of the ith
  farm category in that activity, Theils absolute
  entropy H(?) is defined as
• where

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MethodologyConcentration Analysis (Cont)

• H(?) will increase as the distribution of farms
  or sales becomes more equally distributed among
  farm classifications
• the decrease in the number of small farms
  leads to an increase in H(?)

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MethodologyConcentration Analysis (Cont)

• Relative entropy R(?) takes into account
  differences in the number of farm
  classifications
• where

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ResultsDistribution Analysis

• The number of farms and sales represented by
  small farms decreased over time
• The number of farms and sales accounted by mega
  farms increased over time
• highest increase during the 1992 to 1997 period

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ResultsDistribution Analysis (Cont)

• Commercial and mega farms small percentage of
  farms that accounted for the majority of the
  aggregate agricultural sales
• Small and commercial farms accounted for the
  majority of total grain (corn/soybean and wheat)
  farms and total grain sales

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ResultsDistribution Analysis (Cont)

• Commercial and mega farms accounted for the
  majority of cotton sales
• Mega potato farms small percentage of farms
  that represented the majority of total potato
  sales

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ResultsDistribution Analysis (Cont)

• Commercial and mega farms accounted for the
  majority of total livestock sales in the U.S.

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ResultsConcentration Analysis
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ResultsConcentration Analysis (Cont)
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ResultsConcentration Analysis (Cont)
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ResultsConcentration Analysis (Cont)
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Conclusions and Implications

• Results show differences in the rate of
  concentration of aggregate and commodity specific
  production.
• The degree of concentration of sales in a small
  number of mega farms is higher in livestock
  segments than in crop segments.

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Conclusions and Implications (Cont)

• This concentration has significant implications
  for marketing and sales strategies particularly
  if this small segment of customers has a much
  different value proposition than the mass number
  of producers.

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Conclusions and Implications (Cont)

• Grain segments are lagging behind cotton, potato
  and hog segments in terms of concentration of
  total sales
• the cotton and potato market may be a
  leading indicator for what may happen in grain
  markets in the future

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Conclusions and Implications (Cont)

• The rate with which production agriculture is
  consolidating does appear to be increasing
  particularly in cotton, potatoes and livestock
  segments

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Conclusions and Implications (Cont)

• The key question is whether the accelerated pace
  of concentration in these segments is going to
  come to other segments

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Conclusions and Implications (Cont)

• Is there a point where grain sales begin to
  consolidate at the pace that cotton, potato and
  hog sales have experienced?
• Or, are these commodities destined to concentrate
  at a slower pace?

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Questions