returns to marketings as farm size increases) or economies from ver-
tical integration are included in the analysis. Krause and Kyle [2], for
example, found substantial advantages in both the purchase of inputs
and product sales for Midwestern corn farms in the 5,000 acre range.
Krenz, Heid, and Sitler [3] saw evidence of pecuniary economies in
both input and product markets for large wheat farms in the Great
Plains. Smith, Richardson, and Knutson [6] found that vertical inte-
gration between input markets and farm firms as well as pecuniary
economies in product markets provided advantages to large cotton farms.
Tweeten [7], meanwhile, has taken a noncommodity approach to the
question of economies of size. He concludes that resource costs per
dollar of output decline as gross sales increase up to about $2 million
— and perhaps beyond. Obviously, this size of operation is not usually
thought of as a “family farm.” (Tweeten acknowledges the methodo-
logical limitations to his approach in that the very large farms often
offer an atypical commodity and market configuration that make com-
parisons to smaller farms difficult.)
The point of the brief overview above is to raise a question about
the appropriateness of defending a system of family farms on the basis
of technical production efficiency alone. Is it futile to consider revital-
izing family farm agriculture for the long haul if larger operations
consistently have an economic advantage? Is the advantage that larger
farms apparently have even greater on an after tax basis? Or can
family farms be defended using some other economic rationale, such
as their favorable impact on other economic entities (e.g., farm supply
firms) within their trade area?
If society collectively decides it is desirable to maintain a system of
family farms, and if such farms do not achieve maximum economies
of size, then targeted public policy initiatives will be necessary to as-
sure the continuation of family farms. The present limitation of $50,000
in direct assistance through commodity programs may improve the
competitive odds of middle-size farms compared to those with larger
sales volumes. A wide variety of other initiatives could be devised.
While questions remain about the long-term prospects for family-
size farms, most recent attention has been focused on current cash
flow inadequacies, especially for family farms with high debt loads.
Let’s turn our attention now to the immediate future.
Income Prospects
Many family-size farms are experiencing stress because they have
too much debt for the income stream that’s being generated to pay off
that debt. Furthermore, the problem is exacerbated by continuing de-
clines in the value of assets on which the debt is encumbered. Stress
can be alleviated only if income increases, debts are reduced, or asset
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