These findings have important decision-making implications for dairy producers. If
the pattern of growth and diversification that occurred between 1992 and 2002 continues,
a new type of industry will develop that is very different from the highly specialized,
relatively small firms that have dominated the dairy industry in the past. In this event,
small and medium-sized producers will lose market share and even their businesses to
larger ones. The livelihood of small rural households who depend on production of milk
and dairy products will be increasingly at risk. However, small producers and new
entrants can capture scale economies by partnering or cooperating with others to invest in
large herds or consolidate. They can capture scope economies by adopting alternative
technologies or business models that allow more diversified output.
These findings also have important decision-making implications for policy makers.
Important policy goals include promoting competition, preserving the vitality of rural
communities, and preventing environmental degradation. Policies and political access
that inadvertently give preferential treatment to large firms can undermine the
competitive nature of agriculture. Rather, policy instruments and incentives that focus on
helping small- and medium-sized dairy producers consolidate and/or diversify may be
needed to slow the decline of small dairy farms. Virtually all dairy farms in these cohorts
qualify as small businesses. Facilitation of new business models, information
dissemination, and access to credit for small businesses could all be crucial for
consolidation and diversification. Although inconceivable even a few decades ago,
continuation of the long-term rapid growth rate of firm size experienced in the dairy
industry could result in a highly concentrated industry. Because such a concentrated
industry would also adversely affect the viability of rural communities and the quality of
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