David E. Banker

Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities

Production and marketing contracts govern 36 percent of the value of U.S. agricultural production, up from 12 percent in 1969. Contracts are now the primary method of handling sales of many livestock commodities, including milk, hogs, and broilers, and of major crops such as sugar beets, fruit, and processing tomatoes. Use of contracts is closely related to farm size; farms with

Urban Influence on Costs of Production in the Corn Belt

1 million or more in sales have nearly half their production under contract. For producers, contracting can reduce income risks of price and production variability, ensure market access, and provide higher returns for differentiated farm products. For processors and other buyers, vertical coordination through contracting is a way to ensure the flow of products and to obtain differentiated products, ensure traceability for health concerns, and guarantee certain methods of production. The traditional spot market-though it still governs nearly 60 percent of the value of agricultural production- has difficulty providing accurate price signals for products geared to new consumer demands (such as produce raised and certified as organic or identity-preserved crops modified for special attributes). We are likely to see a continuing shift to more explicit forms of vertical coordination, through contracts and processor ownership, as a means to ensure more consistent product quantity and quality.

Organizational Economics in Agriculture Policy Analysis

This article determines the relative technical efficiency of rural- and urban-influenced crop/livestock enterprises in the Corn Belt. Farmers in urban-influenced locations are less technically efficient than farmers in rural locations. During 1998–2000, stochastic production frontier procedures indicate that a 10% increase in urban influence leads to a close to 4% decrease in technical efficiency. The most successful urban-influenced farms have controlled costs as effectively as rural farms. They have tended to de-emphasize that nondairy livestock activities—particularly beef and hogs—do not rely extensively on off-farm income, and have relatively large, less residential/lifestyle operations compared to less successful urban-influenced farmers. However, our statistical analysis clearly bears out the refrain in popular literature that urban proximity raises the cost for, and decreases the viability of, traditional farms. Copyright 2006, Oxford University Press.

Exploring Alternative Farm Definitions: Implications for Agricultural Statistics and Program Eligibility

The ongoing industrialization of US agriculture features striking changes in the organization of markets and firms, including a noticeable movement toward larger firms and greater product differentiation among both farms and processors, as well as shifts away from the use of spot markets to govern transactions between the two, and toward greater reliance on formal contracts and alliances. These organizational shifts raise important issues concerning the proper role of government in industrialized agriculture, especially with regard to the design of policy regarding environmental, food safety, competition, R&D, and farm support issues. Furthermore, they raise important issues for designing research and data programs to support policy analysis. Our paper discusses how organizational shifts affect the demand for contemporary agricultural policy analysis. In response to the industrialization process, public policy analysts have drawn heavily on the theory of organizational economics and recognized the importance of developing rich empirical databases on the wide variety of market transactions and organizational responses in agriculture. In particular, we highlight our primary vehicle for understanding organizational change in agriculture, the annual Agricultural Resource Management Survey (ARMS), a comprehensive survey instrument applied to thousands of US farms. The paper describes relevant ARMS-based research and the challenges of updating the survey and our research programs to capture the relevant issues.

Industrialization and Contracting in U.S. Agriculture

Meeting agricultural policy and statistical goals requires a definition of U.S. agricultures basic unit, the farm. However, these goals can be at odds with one another. USDA defines farm very broadly to comprehensively measure agricultural activity. Consequently, most establishments classified as farms in the United States produce very little, while most production occurs on a small number of much larger operations. While desirable for obtaining comprehensive national coverage, measurement and analysis based on the current definition can provide misleading characterizations of farms and farm structure in the United States. Additionally, more stringent requirements have been proposed for farms to qualify for Federal agricultural program benefits. This analysis outlines the structure of U.S. farms, discusses the current farm definition, evaluates several potential criteria that have been proposed to define target farms more precisely, and examines how these criteria affect both statistical coverage and program eligibility.

An Analysis of the Farmer-Owned Reserve Program, 1977–82

This paper examines the industrialization process of U.S. agriculture by examining the trends in the number of farms, the concentration of production during the last decade, and the dynamics of farm survivability, entry, and exit underlying aggregate statistics. We next examine vertical coordination as part of the industrialization process and highlight contracting in the poultry industry. The analysis provides evidence that production is continuing to be concentrated on a smaller number of farms at a relatively rapid rate, in spite of the stability in the number of farms. Although contracting clearly dominates the broiler industry, it is less prevalent in egg and turkey production, where other forms of vertical coordination are likely established.

Comparative performance of southern plains and US farm businesses

An econometric model of the U.S. agricultural sector is utilized to examine the effects of the Farmer-Owned Reserve Program on crop and livestock production and prices, farm income, crop carry-over levels, and government outlays. The program has had a positive impact on commodity prices and farm income but has not significantly reduced the annual variation in commodity prices. It also increased government outlays for agricultural commodity programs, but all of the increase is potentially recoverable. The continued use of the FORP to enhance commodity prices likely will lead to excessive government outlays in the long run.

Structure and Finances of U.S. Farms: Family Farm Report, 2007 Edition

The comparative financial performance of Southern Plains and US farm businesses was analyzed for the 1987-1989 period. The results showed no significant differences between the profitability ratios of the two groups of farms, except in the

Scale Economies and Efficiency in U.S. Agriculture: Are Traditional Farms History?

40,000 to

Productivity, Economies, and Efficiency in U.S. Agriculture: A Look at Contracts

249,999 sales class, where US farms performed at a higher level in two of the three years studied. In both groups, farms with gross sales of