External economic drivers and US agricultural production systems

Abstract US agriculture operates in a market driven economy, although government policies can have influence on what farmers produce and how they produce it. As with other businesses, agricultural producers respond to economic incentives and disincentives, and make decisions to maximize their welfare; usually measured as net income. We examined how external economic drivers shape the type of agricultural systems that producers adopt. Specifically, we considered the influence of technological advancements, income supports embodied in farm legislation, and changes in market structure and consumer demand. Changes in technology have often favored large-scale and specialized operations. Many of the technological advancements have required large-scale production units to justify the investment. Often the technology has been commodity specific. However, there is some evidence that more diversified production units might be able to achieve economies of both scale and scope. The influence of commodity support programs has been ambiguous. As farm legislation has evolved to decouple production decisions from program benefits, the incentives to specialize in program crops (crops that receive price and/or income benefits under federal legislation, such as corn, other grains and oil seeds) have diminished. However, wealth and risk effects, albeit small, may have promoted or inhibited the adoption of a more integrated system. The ability of producers to adopt more integrated systems has been primarily influenced by their natural resource base and proximity to markets. Changes in market structure, channels and consumer demand in the past five decades have been dramatic with consolidation and specialization in both production and marketing sectors. However, the diversity of consumer demand has also created opportunities for more integrated farm operations. There is an increasing number of consumers who have become concerned about how and where their food has been produced. Markets for organic, locally produced, free range and the like are expected to grow. While price and income supports may have been biased towards specialization (as these programs were targeted to specific commodities), the reduction in risk associated with the programs has enabled producers to expand the number and diversity of their production enterprises. Furthermore, through the use of strategic alliances, cooperation among producers on a regional basis may eventually lead to greater integration and diversification than could be achieved for the individual farm operation.