Economic and Marketing Information
FOR INDIANA   FARMERS
Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana
September  29,   1962
How Big and How Intensive Should the Farm Be?
by N. S. Hadley, P. R. Robbins and F.  V. Smith, Agricultural Economics
Many people are asking, "What are the limits to bigness? How long will the average size of farms continue
to increase?" During the 1950's, Indiana farm account
cooperators increased average farm size about 8 acres
per year and capital investment about $5,400 per year.
However, the real question is, "How big must a farm
be to meet competition?" Or, in other words, "What
is the minimum size farm business that can be expected
to give returns to labor and capital comparable to what
these resources could earn if used elsewhere?"
During and immediately after World War II, prices
of farm products were rising, profit margins were wide
and farm earnings were good. What was owned today
would be worth more tomorrow. Advantages of price
increases covered many mistakes in business operations.
Under these circumstances bigness was all important.
Generally the more a man expanded his business, the
better off he was. But since the end of the Korean Conflict, farm prices have dropped and profit margins have
been narrow and sometimes negative. Cutting unit costs
of production has often been more important than attaining an extremely large volume of business.
1 Information in this article is based on summaries of Indiana
farm account cooperators, unpublished research and the judgment
and experience of the authors.
Farming is a business of high overhead costs. Almost
every farm has to carry the costs of a set of farm buildings and a minimum complement of equipment. In addition, most farm businesses have as a fixed cost the labor
of the operator. It is necessary to spread these fixed
costs over a fairly large volume to secure satisfactory
returns to labor and capital. Up to a point, farm earnings increase as the size of business increases I Table 1 >.
A l^-man equivalent farm is more likely to succeed
than a 1-man farm and the average two-man farm earns
more than a li/o-man farm. But farms with more than 3
men tend to produce slightly lower returns to both capital
and labor than smaller farms.
It is true that there are exceptions. We all know of
highly successful farms with 3, 4, 5 and even more
workers. The maximum size of business is limited by the
managerial ability of the operator. Any good farmer
can direct his own activities. Most good farmers can
direct the work of themselves and one hired man, but
directing two hired men is more difficult and a third
hired man often costs more than he produces. Farming
usually requires a dispersed labor force. This makes
supervision difficult and costly. Some farms have more
than one operator—father and son, brothers or other
multiple ownership arrangements, often providing more
than one manager. Where this is the case, the efficient
Table 1. Relation between size of farm (measured in productive man work units) and earnings, 1954-60"
Size group in productive man work
units"
Item
Less
than
250
350
to
450
550
to
650
750
to
850
850
to
950
More
than
950
Average no. of farms
Man equivalent
Tillable acres
Labor income0
Rate earned on investment
Total investment
(percent)
58
1.1
131
$1,377
1.7
$44,600
104
1.4
184
$3,039
4.6
$69,900
60
1.8
244
$3,898
5.1
$94,900
24
2.0
312
$5,405
6.1
$122,800
16
2.5
357
$6,884
6.7
$138,300
40
3.2
444
$6,820
5.6
$192,632
"Source: Farm Business Summaries. Purdue University.
b A productive man work unit (PMWU) is the average amount of work accomplished by one man in a 10-hour day on commercial
Indiana farms.
"Return to operator's labor and to management.