PR - ESTIMATING THE MOST EFFICIENT FARM SIZE FOR CROP PRODUCERS

Abstract:
Economic theory suggests that farms will experience increasing economies of size up to some number of hectares. After that, there is likely a range of hectares where economies of size are constant before starting to increase. Finding that range where economies of size are constant will be where firms earn the most profit per hectare and are most likely to survive in the long run. This paper examined the net returns per hectare for over 200 farms in central Kansas. Regression analysis was used to predict the adjusted net farm income per hectare based on either the number of hectares or the log of hectares. The expectation was that there were enough farms examined to show both the increasing and decreasing economies of size. However, the resulting R squared was very low because of a large variability in net returns per hectare for the smaller farms. A linear regression line fit the data just as well as a nonlinear model. This could indicate that most farms in the examination were already at an efficient size.
Keywords: Economies of size, Profitability, Efficiency, Hectares, Crop production