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

diversified sales class. By 2002, 62% of farms in cohort 1 and 24% of farms in cohort 10
received less than half of their agricultural sales from milk and dairy products, whereas
none did in 1992.

Across cohorts, diversification followed roughly the same pattern in 1997 and 2002
as in 1992. The smallest cohort was the most diversified and the largest cohort was the
most specialized in each census. The graphical evidence of less diversification in the
larger cohorts than in the smaller ones was confirmed statistically by the correlation
between firm size and diversification tendency. Correlation coefficients between cohort
number and the percent of farms in the most specialized sales category were 0.71, 0.82,
and 0.92 in 1992, 1997, and 2002, respectively. The correlation coefficients with the
least diversified sales category were -0.88 in 1997 and -0.94 in 2002. These statistics
document a clear tendency toward greater specialization as firm size increased, and this
2

tendency became stronger over time.

Dairy operations of all sizes have undergone changes in their scope of production
towards more diversified production plans with less reliance on dairy and dairy-related
production. The initial size only influenced the extent of the adjustment. Thus, the
answer to the second question, do firms become more diversified over time, is also an
unqualified yes.

² While the diversification trends between 1997 and 2002 followed those between 1992 and 1997, some
caution should be exercised when interpreting the most recent statistics. Milk and dairy product sales do
not include cull dairy cow or other cattle sales, and milk price was lower in 2002 than in 1992 or 1997.
Consequently, it is possible that part of the apparent increase in diversification in 2002 was due to a higher
than normal culling rate induced by the lower milk price.

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