Farm size and growth are often discussed in the context of economies of size. Previous research suggests that the average cost curve in production agriculture is downward sloping or at a minimum L-shaped (Langemeier, 2013). Thus, in general, larger businesses have lower costs of production. Other motivations for farm growth include to provide opportunities to more fully employ the skill sets of managers, to add family members to the operation, and to receive better prices on inputs and products sold. In fact, farm growth is a “natural phenomena”, in part because successful farm businesses have earnings that they must deploy, and using these earnings to expand the farm business is a logical choice.

Today’s environment in which risk and uncertainty are dominant forces may seem like an odd time to think about farm growth. Risk is perceived by many individuals to be something that is “bad”. However, entrepreneurs and business owners realize that without some risk and uncertainty, there is likely to not be much return or reward. Also, it is important to note that risk and uncertainty have both an upside and a downside (Boehlje, 2015). The key management challenge is to mitigate downside risk and try to capture the upside associated with risk.

This article discusses ten questions that should be addressed when examining the challenges and opportunities associated with farm growth. Future articles (listed at the bottom of this page) will delve into some of these questions in more detail.

Why Grow?

There are numerous reasons why a farm may want to grow including the following: reduce costs, improve profit margins, improve asset utilization, bring in new family members, invest retained earnings, and more fully utilize the skills of key managers. Before growing, it is essential for an operation to think about their strategic direction. Is the operation interested in a commodity based strategy or a differentiated product strategy? A commodity product strategy focuses on cost control. In contrast, a differentiated product strategy focuses on value-added production or receiving an above average price for the farm’s products. As an operation continues to think about growth, how growth impacts strategic direction needs to be addressed.