Do the Largest Firms Grow the Fastest? The Case of U.S. Dairies

Firm Size and Diversification

Because of the criteria used to select farms to include in the sample, no dairies in
1992 were in the most diversified sales class (with less than 50% of agricultural sales
from milk and dairy products). That selection criterion excluded about half of all farms
with milk cows from the sample. It is widely accepted that U.S. dairy farms are highly
specialized in milk production and generate most of their agricultural revenue from the
sale of milk and dairy products. Yet many farms had milk cows in 1992 that did not meet
that minimum hurdle for inclusion in the sample.

Further, as apparent from the first panel of Figure 2, the largest cohort (cohort 10)
was the most specialized and the smallest cohort (cohort 1) was the most diversified in
their source of agricultural revenue. A little more than a quarter of farms in the smallest
cohort received at least 90% of their agricultural revenue from the sale of milk and dairy
products while close to half the farms in the largest cohort were that specialized. A third
of cohort 1 farms and a fifth of cohort 10 farms received less than 75% of their revenue
from dairy sales.

In successive censuses (see the second and third panels of Figure 2), each cohort
became more diversified. ¹ For example, the percent of firms in cohort 1 that received
90% or more of their agricultural sales from milk and dairy products declined from 28%
in 1992 to 14% in 2002. For Cohort 10, the corresponding numbers were 45% in 1992
and 42% in 2002. Much more dramatic was the change in number of farms in the most

¹ An exception was that a larger portion of farms in cohorts 3-10 received 90% or more of agricultural
revenue from sale of milk and dairy products in 1997 than in 1992. However, a substantial share of farms
in all cohorts moved into the most diversified sales class in 1997.

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