Agriculture Reference
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in livestock technology, which largely eliminated nature, have allowed factory-corporate
production to dominate in feedlot cattle, hogs, and poultry. Our model also correctly pre-
dicts impacts on farm organization in British Columbia and Louisiana due to crop cycles
and monitoring costs. Finally, our model correctly predicts the differences in capital levels
and farm acreage observed in different farm organizations.
EW Notably, our focus on the trade-off between moral hazard incentives and the gains
from specialization in a large organization often generates predictions at odds with those
based on risk sharing. Our model says that family farms will emerge especially in the most
risky situations—large variance in season dates, large variance in stage specific random
shocks, and so on—because these situations are filled with tremendous potential for moral
hazard. The risk-sharing approach, however, would imply that large-scale organizations
would emerge to spread this risk around. Yet as the world has shown us time and time
again, the family farm dominates agriculture whenever Mother Nature remains unchecked.
Although there is compelling support for our approach, we have made a number of sim-
plifications. First, we limited the discussion of hired labor to the corporate farm. Although
this is where hired labor is most important, it remains true that nearly all farms hire some
part-time labor and often use family labor. Second, we did not examine interstage comple-
mentarity and changing farm ownership over different stages. These important features of
organization are left for future research. Third, we have ignored the role of economies of
scale. It is possible, for example, that farms become large factory-corporate firms when the
extent of the market increases enough for firms to capture scale economies. The economies-
of-scale argument would imply that for commodities like corn and wheat, actively traded
in world markets, farms should be large corporate firms. Certainly, an extensive market is
a necessary condition for large-scale production, but it is not sufficient. Only when sea-
sonal forces are limited can economies of scale be realized, as for example, in milling grain
into flour. It simply would not pay to invest in highly specialized, large-scale capital un-
less seasonal forces were so lacking that highly specialized wage labor could effectively be
employed. In this regard, our findings are consistent with Becker and Murphy (1992) who
note: “The efficient division of labor is then limited by coordination costs, not by market
size” (1142).
Should we worry about the end of family farming? Will family farms be with us in the
twenty-first century? No, and yes. Although the organization of industry has generally
followed a transition from family firms to large factory-style corporations, most farming
remains a family production activity. Short infrequent production stages in farming limit the
benefits of specialization and create moral hazard. Farm organization will gravitate toward
factory processes only when farmers can control the seasonal and random shock effects
of nature. When this occurs, farms develop into the large-scale corporate businesses found
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