Economies of Size in Production Agriculture

Economies of size have far-reaching consequences for food production and rural America's future. There are many hidden costs to the “cheap” food that large-scale farms produce.

Data from the Census of Agriculture provides an opportunity to examine issues related to economies of size. To reduce costs, large-scale farmers typically use highly centralized and mechanized production practices, including confined animal feedlot operations and monocultures. Though these methods are efficient, they create conditions that put plants and animals at risk of disease and microbial contamination and they harm the environment. This specialization of production often ignores the benefits and advantages of the synergy that exists in agriculture, whereby crops feed animals and animal manure provides nutrients for crops.

Key Findings:

  • Agricultural production displays an L-shaped average cost curve where costs are lower initially as a farm grows, but reach a point where no further gains are achieved.
  • Farms with sales over $500,000 account for 5 percent of the farms and 74 percent of all agricultural sales.
  • Large-scale production incurs external costs from prophylactic antibiotic use, impact on rural communities and environmental damage which are not included in cost studies.

Economies of size exist in production agriculture but these economies are dissipated much sooner than is realized. Research that favors large-scale farming and reducing the amount of farm labor has led to industrial farms, which produce cheap bulk commodities and cheap food for consumers. The emphasis on economies of size has also produced many undesirable consequences, which threaten both health and food security.