Economic and Marketing Information
FOR INDIANA  FARMERS
Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana   
October 31, 1969
For Commercial Agriculture
ALTERNATIVE COORDINATION POLICIES
by Paul L. Farris, Agricultural Economics
It has become clear in recent
years that problems of commercial agriculture are different than
problems of low income farmers
who have inadequate land and
capital. Within the commercial
sector, two further distinctions
are appearing: (1) Matching
over-all supply and demand so
that farm people realize satisfactory prices and incomes; and (2)
Guiding the course of organization and competition within agriculture and between agriculture
and nonfarm sectors.
Our concern here is with these
organizational issues. A shift of
managerial functions out of the
hands of farmers would fundamentally change the organization
of agriculture in ways not fully
visible from declining farm numbers and increasing farm sizes.
Change in organization also has
implications beyond agriculture.
The family farm has been warmly
praised for its contribution to
morality and democracy in American society. However, the most
forceful argument for strengthening the family farm, defined not
only in terms of the relative
amount of family labor employed
but particularly to include a reasonable degree of managerial
independence, is to support decentralized decision-making and
diffused economic power in agricultural organization.
The social benefits, which come
naturally from a structure in
which buyers and sellers are sufficiently  numerous  and vigorous
to provide for competitive checks
and balances at all stages in production and marketing systems,
are generally well known. On the
other hand, both economic theory
and historical experience raise
some questions about the possible
effects of concentrated power and
of certain organizational tendencies in agriculture on farmers,
farm communities, and society.
With regard to efficiency, in
most circumstances it is not clear
that alternative systems of production would be more efficient
than family farm agriculture.
While many farms are too small
to achieve low unit costs of production, neither great size nor
particular types of integrated
structures seem necessary for efficiency or progress.
Significant Aspects of the
Modern Food and Fiber Economy
To analyze organizational alternatives, five fundamental characteristics of the modern food and
fiber economy must be taken into
account:
(1)  Gains from Coordination
Economic and technological
forces are bringing strong pressures to integrate, in one way or
another, the functions and processes involved in turning out
goods and services for the consuming market. Closer coordination makes more exacting demands on all participants in
vertically organized systems and
moves decision-making toward
one point in the channel, which,
in turn, tends to become the single profit center.
(2) Size and Organization of
Firms with whom Farmers
Deal
The difference between the industrial organization — that is,
size, concentration, integration
and diversification — of nonfarm
firms who deal with farmers and
that of farmers is often of critical
significance. Suppliers and processors may have a substantially
wider range of behavioral options
open to them than are available
to farmers.
(3) Market Orientation
The modern selling environment in the U.S. is one in which
most consumers are busy and
have incomes that will buy more
than bare necessities for life.
Highly processed and conveniently packaged items find increasing
acceptance. This setting lends itself to the management of demand
by manufacturers and distributors. They are in an advantageous position to anticipate broad
changes in consumption patterns,
to develop particular products
which will fit into general trends
in life styles, then to assure that
people buy what they produce by
using modern advertising and
promotion techniques. The phenomenon is of growing importance in the food industry.
(4) The Farm as a Producer of
Raw Material
The undifferentiated raw materials which farmers turn out, to