Farmers' Buying And Selling Patterns - USDA

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Farmers’ Buying and Selling Patternslmpllcations for CooperativesEmerson M. Babb, Professor, Food and Resource Economics Department,University of Florida, under a cooperative research agreement with AgriculturalCooperative Service, U.S. Department of Agriculture, Washington, DC.AbstractThis research analyzes farm characteristics and other factors that affect thebuying and selling behavior of farmers. Information for 1986 was obtained byquestionnaires from 2,537 farmers in the Midwest and Southeast. The majorfinding of this study is that the buying and selling behavior of farmers does notvary greatly by size and type of farm. Cooperatives are almost as successful ingetting the business of large-farm operators as that of medium- and small-farmoperators. There are, however, some differences in types and sizes of farms thatprovide the basis of better service to farmers and increased patronage. Thesedifferences relate to goals, time devoted to the farm business, sources ofinformation used for farm decisions, types of services used, and opinions aboutcommodity marketing and purchases of inputs. The business implications of thesedifferences for cooperatives are described.Key Words: Cooperatives, farmer, purchasing, sales behavior, farm suppliesand servicesACS Research Report Number 73July 1988

PrefaceContentsChanges in the structure of agriculture raise questions about how cooperativesshould organize to serve an increasingly diverse group of farmers. informationconcerning the needs and preferences of operators of various types and sizes offarms is required before the question of redesign of cooperative organizations ortheir functions can be addressed. This research identifies factors that will helpcooperatives better serve farmers by analyzing farm characteristics and practicesthat affect buying and selling behavior of farmers. Information regarding farmcharacteristics and practices, buying and selling behavior, and farmers’ opinionsabout purchase and sales activities of firms was obtained by questionnaire from2,537 farmers in the Midwest and Southeast. The findings in this report are basedon analysis of data provided by these farmers, most of it for 1986.HIGHLIGHTS . . . . . . . . . . . . . . . . .OVERVIEW.Problem. . . . . . .Objectives and Procedures . .Characteristics of RespondentsRESULTSGoals. . .Resource UseInformation . .Services. .Patronage.Opinions. . . . . . . . .I I . . . . . . . . . . . . . . . . . . . . . . . . . . . .I.I.”. . j . .1. . . . . .I.iv.i1233347.9. 10. . . .IMPLICATIONS . . . . . . . . . . . . . . . .12REFERENCES14. . . . . . . . . . . . . . . . . . . I I . . . . .APPENDIX: Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . .15iii\

HighlightsThe most striking finding of this study was that differences in buying andselling behavior among operators of farms of various sizes and types weremodest. If cooperatives can satisfy the preferences and needs of medium-sizedfarm operators, they should be able to meet the requirements of most large-farmoperators. Cooperatives in the study area were almost as successful in getting thebusiness of large-farm operators as that of small- and medium-farm operators.Differences among various types and sizes of farms were identified thatprovide the basis for better serving the needs of farmers. They also suggestniches and business opportunities for cooperatives.Some of the differences among farmers are listed below and their businessimplications were described.l Farm characteristics of major and minor users of cooperatives were notgreatly different, but farmers with more experience did have greater cooperativepatronage.l The most important goal of farmers was economic, to reach desired netincome goals.l The wife played an important role in all aspects of the farm business, butspent a relatively large portion of her time in the areas of buying, selling,managing, and planning.l Farm magazines, family, and other farmers were important sources ofinformation. Large-farm operators were more willing to pay for information and theyused more sources.l Both cooperative and noncooperative firms were used by the same farmerfor information. These firms were sources of information primarily for purchase andsales decisions rather than management and planning.l Use of other firms for financial and business services increased and use ofproduction services decreased as farm size increased. Cooperatives appeared tohave been more successful in selling production services.l Farmers did not have a high degree of loyalty to a firm, whethercooperative or noncooperative. The average farmer had purchase/sale transactionswith two cooperatives.l Large differences were found in the percentage of business withcooperatives among commodities and inputs and among States.l Farm characteristics, which cooperatives cannot control, did not explainmuch of the buying and selling behavior of farmers. Cooperatives can influencethe price, quality, and service that affects their business volume.

Farmers’ Buying and Selling PatternsImplications for CooperativesEmerson M. BabblOVERVIEWProblemFarm structure has changed slowly but dramatically overthe past 30 years. In 1984, some 300,000 farms (13.5percent of the total) grossed over 100,000, had averagenet income of about 40,000 and had average equity ofabout 500,000. These 300,000 farms produced 73percent of the cash receipts from agriculture. In contrast,about 1.4 million farms had farm sales of less than 20,000. These farmers had income from off-farmsources that averaged 20,000. These 1.4 million farmsproduced less than 6 percent of the cash receipts. This degree of concentration was the product of many forces,such as technology, and evolved over a long time. Thecurrent financial crisis in agriculture will likely acceleratethis concentration. Most of the 300,000 larger farmers*and the 1.4 million small farmers2 think of theiroperations as family farms. A farm generating 100,000cash receipts is not considered large. This level ofreceipts can be produced by 400 acres of crops, or 60farrow-to-finish sows, or 50 dairy cows, or 150 fed cattle[6].* In fact, a farm generating 2&,000 of cash receiptsis probably needed to produce income for a modest levelof living. About 122,000 farms have sales over 200,000(5.4 percent of all farms) and they have about 54 percentof total cash receipts.The cooperative system in U.S. agriculture was designedto strengthen family farms. In past years, when farmswere more homogeneous, there was less need to havediverse cooperative organizations. Different types oforganizations and operations may now be needed to servethe greatly altered and more diverse farm structure. Itmay be possible to have cooperatives that focus on largeand small farms (or other segments) without losing theadvantages of size in buying and selling that is nowperformed by a single organization.‘Emerson M. Babb is a professor in the Food and Resource EconomicsDepartment, University of Florida. The research reported in this publication was supported through a cooperative research agreement betweenthe Agricultural Cooperative Service, U.S. Department of Agriculture,and the University of Florida. Daniel Babione and Pongchat Chunkasutwere responsible for the management and processing of data. Helpfulcomments on an earlier draft were provided by Thomas Gray, CharlesKraenzle, and Bruce Swanson. Those desiring more detailed resultsshould contact the author at 1130 McCarty Hall, University of Florida,Gainesville, FL 32611.*Numbers in brackets refer to publications cited in reference section.‘The phrases “large-farm operator, small-farm operator, etc.” will beshortened to “large farmer, small farmer, etc.”The design of cooperative organization and functions tobe performed must start with knowledge of the needs andpreferences of various types and sizes of farms. Are theredifferences among large and small farmers with regard tofarm objectives, time that can be or is devoted to thefarm business, managerial skills, analytical capacity,financial strength, and risk preferences that give rise todifferent needs for products and services? Is commonalityamong members important and, if so, what providescohesiveness?Information about differences in needs of farmers isnecessary before the question of redesign of cooperativeorganization can be addressed. If important differencesexist in farmer needs, cooperatives may lose importantsegments of farmers if they use an organization designedto serve all farmers. The cooperative system would bedrastically changed if it lost a major portion of eithersmall or large farmers.Objectives and ProceduresGiven the changes in the structure of agriculture, theoverall objective of this research was to identify factorsthat will assist cooperatives in better serving theirmembers. The research examined farm characteristics andother factors that might affect the buying and sellingbehavior of farmers. Purchases of inputs and services,1

sources and use of information, and sales of commoditieswere analyzed to determine differences associated withsize of farm, type of farm, extent of cooperativepatronage, and location of farm. Opinions about purchaseand sales activities of firms were analyzed.A questionnaire was used to obtain data from 2,537farmers in Indiana, Illinois, Iowa, and Georgia with partsof surrounding States (Appendix). While these farms werelarger than average, they were representative in otherrespects. Data were obtained in January 1987, but most ofthe information provided was for 1986.Characteristics of RespondentsAbout 60 percent of the farmers returning questionnaireshad gross sales of over 100,000 (table 1).Livestock/dairy type of farmers, farmers with 11 to 30years of farming, and farmers in the Southeast and IowaTable l-Characteristics of farmers In samplehad higher than average gross sales. There were 169farmers with gross sales in excess of 500,000. Thesewere not separated from the 200,000-and-over categorybecause the number of observations was small whensubdivided, particularly by type of farm or State. Further,there were usually only minor differences in the behaviorof farmers with over 500,000 of gross sales and thosewith over 200,000. Where differences were found, theywill be described for the very large farmer (gross salesover 500,000).Cooperative patronage rather than membership was usedto classify farmers’ involvement with cooperatives. Amajor user of cooperatives was defined as a farm thatused cooperatives for over 50 percent of its livestocksales, its grain sales, or its farm supply purchases. Usingthis classification, about 57 percent of the respondentswere major users of cooperatives and 43 percent wereminor users (table 2). Farm size made little differencebetween major and minor users of cooperatives. Thepercentage of major cooperative users in the over 500,000 sales class was 57 percent, exactly the same asfor the overall sample. The proportion of major users wasGross sales of farm ( 000)Characteristicl391 oo199Over199Table 2-Characteristics of farmers In sample, bydegree of cooperative use45328428CharacteristicNumber of farmers’Type of farmField 10Degree of cooperative use’Cooperative user2MajorMinor199141366268426298418338Years of farming1 to 1011 to 2021 to 3031 to 40Over 364Type of farmNumber of farmers2Field cropsLivestock/dairyOther90742379639348571 to 1011111 to 2014127021 to 3031 to 40Over Figures may not add to the same total for various categories because of incomplete responses to some questions.2A major user of cooperatives was defined as a farm which usedcooperatives for over 50 percent of its livestock sales, its grainsales, or its farm supply purchases.2MinorYears of anaIllinoisIowaSoutheast‘A major user of cooperatives was defined as a farm which usedcooperatives for over 50 percent of its livestock sales, its grainsales, or its farm supply purchases.2Figures may not add to the same total for various categories because.of incomplete responses to some questions.

higher for field crop farmers than for livestock/dairyfarmers and the proportion of major users increased withyears of farming. This was consistent with results in anearlier study, which found that years of farming wasrelated to favorable perceptions of cooperativeperformance [2, p. 121. The proportion of majorcooperative users in Indiana was lower than for otherStates.Characteristics of farmers in the Midwest samples havenot changed greatly since 1980 [2]. Cooperativemembership was about the same, and the percentage offarm supply purchases and commodity sales tocooperatives was similar. About 6 percent more farmerswere classified as field crop farmers. The greatest changeconcerns sales volume. In 1980, 17 percent of the samplehad sales over 200,000, compared with 27 percent in thesame States for 1986. Of course, price changes accountfor some of these differences.RESULTSDifferences in the buying and selling behavior of farmerswill be reported primarily by size of farm, type of farm,degree of cooperative use, and region. Where differencesare minor, data are shown for the size of farmclassification only.GoalsFarmers were asked to rank the importance of five goalsthey were trying to achieve (table 3). Virtually nodifferences surfaced in the ranking of goals by farmers indifferent gross sales categories. This was also true fordifferent types of farmers, different degrees ofcooperative use and different regions. Even the percentagedistributions for these goals were about the same.Obtaining a desired income was the most important goal,and increasing the size of farm operation was the leastimportant goal for all categories of farmers. These goalrankings were undoubtedly influenced by the financialstress in agriculture at the time the survey was made.Some farmers who had expanded farm operations wereexperiencing debt problems. Even though events mayhave conditioned goal ranking, the impact of these eventsappears to have been the same for all sizes and types offarms.Resource UseBoth husband and wife worked at off-farm jobs. And,interestingly, both devoted about the same amount of timein management and planning.The average husband spent 50 hours per week on farmwork and 7 hours on off-farm work (table 4). The hoursof farm work increased with size of farm, while off-farmwork declined. The hours devoted to farm work by thewife did not vary with farm size, but off-farm workdeclined slightly as size of farm increased.Livestock/dairy farmers spent more hours per week onfarm work than did field crop farmers, but field cropfarmers had more hours of off-farm work (table 4).Wives of livestock/dairy farmers also worked more hourson the farm. Both husbands and wives on the type offarm designated “other” had a lot of off-farm work. ThisTable 4-Average hours per week devoted to farmand off-farm workHusbandWifeCharacteristicTable 3-Importance of goals, by size of farmGoalFarmGross sales of farm ( 000)-.40l100- Over3999199199All- Average rank OF goaPIncrease size of farm operationGet desired net incomeEnjoy rural livingIncrease net worthLeave successful farm to rmGross sales of farmAverage hours( 000)l- 3 940 - 99100 - 199Over 726.014.017.212.712.210.616.1Type of farmField cropsLivestock/dairyOther‘Average rank computed on basis of 1 most important and 5 least important.3

category included farmers who obtained most of theirgross income from poultry, fruits and vegetables, customfarm work, and nonfarm work.Only minor differences were found in the allocation oftime for both husband and wife between major and minorusers of cooperatives. Differences among regions werealso small. Iowa and the Southeast had slightly higherhours of farm work, but this probably reflected somewhathigher proportions of livestock/dairy farms.The percentage of time devoted to three classes of farmactivities by husbands did not vary greatly with farm size(table 5). Farmers with sales over 500,000 did devote 6percent more time to management and planning and 6percent less to outside farm work than did the averagehusband. Based on articles in farm magazines, timedevoted to buying inputs and selling outputs and tomanagement and planning was expected to increase withfarm size to a greater extent than was found.In fact, she spent almost as much time on this activity asthe husband. For farms with gross income greater than 500,000, the wife spent 48 percent of her farm relatedtime on management and planning, 20 percent on buyingand selling and only 32 percent on outside work. Theother major difference in time allocation was in theSoutheast where wives spent 49 percent of their farmrelated time on management and planning and 38 percenton outside work.The degree of specialization declined with farm size,although the differences were not large (table 7). For verylarge farms, 67 percent of their gross income came fromtheir largest income-producing enterprise. A higherpercent of field crop farmers received 100 percent of theirincome from one enterprise, but on average were no morespecialized than livestock/dairy farmers. Farms in Iowawere slightly more diversified than those in other States.InformationLivestock/dairy farmers spent a greater proportion of theirtime on outside farm work and less time on managementand planning than did field crop farmers (table 5).Regional differences and differences between major andminor users of cooperatives were small.Information influences the decisions of farmers regardingpurchases of inputs and services and the sale ofcommodities. It is critical to the achievement of goals setby farmers. Firms that are reliable in supplying theinformational needs of farmers may have an advantage inobtaining their business.The wife spent about 27 hours a week on farm and offfarm work, in addition to work in the home. About halfof her time for farm work was outside work, and shespent a substantially higher percent of her time inmanagement and planning than did her husband (table 6).Farm magazines, other farmers, and family members arethe most important sources of information for farmers(table 8). Persons in cooperative and noncooperative firmswere also important sources of information. CooperativesTable B-Average percentage of time devoted tofarm actlvltles by husbandTable B-Average percentage of time devoted tofarm activities by wifeCharacteristicOutsidefarmworkGross sales offarm ( 000)l- 3 940 - 99100 - 199Over 199AllBuyingandsellingManagementandplanningGross sales offarm ( 117.216.314.718.316.6Type of farmField l- 3 940 - 99100 - 199Over 242.936.147.249.016.415.336.435.7Type of farm67.574.714.712.217.813.1Field cropsLivestock/dairy

were used slightly more as sources of information. Paidsources of information such as commercial farmmanagement services, brokers and commodity analysts,paid advisers and consultants, and computer data bases ornetworks were not widely used. In the face of theinformation revolution, it is surprising how little theimportance of information sources has changed during thepast 30 years. Sources of information reported in theInterstate Managerial Survey were ranked as follows:farm magazines, newspapers, neighbors and relatives,radio, persons in firms, county agent/vocationalagricultural teacher/university specialists, universitypublications [7, p. 311. The use of information sourcesdid not vary greatly with size of farm (table 9).Table 8-Percentage of farmers using varioussources of informationTable 7-Percentage of gross farm income from largest income producing enterprise, by farm characteristicMuchuseSource of informationl252650Size of farm ( 000)l- 3 940 - 99100 - 199Over 199All51757699Averagepercentage100Percent of 6968692221414523281456969Type of farmField cropsLivestock/dairyNousePercentPercent of gross farm incomeCharacteristicSomeuseBanker/financial institutionCommercial farm managementservicesCounty extension personFarm magazineBrokers/commodity analystsPersons at universitiesUSDA news servicesCommercial newsletters/advisoryPersons in noncooperative firmsPersons in cooperative firmsUniversity/USDA publicationsPaid advisers/consultantsOther farmersFamily members/friends’Computer data 2.229.831.722.115.574.15.97.874.9Table O-Use of information sources, by size of farmGross sales of farm ( 000)Source of informationl391 1.81.82.7Average importencelBanker/financialinstitutionCommercial farm management serviceCounty extension personFarm magazineBrokers/commodity analystsPersons at universitiesUSDA news servicesCommercial newsletter/advisoryPersons in noncooperative firmPersons in cooperative firmsUniversity/USDA publicationPaid advisers/consultantsOther farmersFamily members/friendsComputer data Average importance computed on the basis of 1 much use, 2 some use, and 3 no use.5

great deal of overlap existed in farmer use of cooperativeand noncooperative firms for information. Major users ofcooperatives made extensive use of noncooperative firmsand minor users of cooperatives made extensive use ofcooperatives for information. Both cooperative andnoncooperative firms had a great deal of access to farmersas customers by virtue of their informational contacts.Larger farmers did make greater use of paid sources suchas brokers and commodity analysts, commercialnewsletters or advisory services, and paid advisers andconsultants. They made less use of other farmers andfamily members. The USC of information sources showedalmost no variation among farmers in different regions,types of farm or degree of cooperative use. Major usersof cooperatives did use cooperatives as a source ofinformation slightly more than noncooperative firms. ATable lo-Average number of information sourcesused by farmers according to degrees of use- - - Degree of useGross salesof farm ( 000)-. .-.MuchuseSomeuseNouse- .-.While the degree of use of various sources of informationdid not vary greatly with farm size, larger farmers usedmore different sources of information (table 10). Largerfarmers spend much more time on farm related work andhave greater incentive to expand the search forinformation. Their return on investment for informationfrom commercial sources may be higher. No differencesshowed up in the number of information sources used bydifferent types of farmers, farmers in different regions, ormajor and minor users of cooperatives.Number140”100 OverAll39991991991.6691.97.71.88.22.28.72.08.1 .As was found in the Interstate Managerial Survey 30years ago [7J, farmers were discriminating in their use ofinformation sources (table 11). Farmers used cooperativeand noncooperative firms extensively as their mostimportant source of information for decisions aboutbuying and selling. Cooperatives were more heavily used5.95.14.73.94.7Table II-Percentage of farmers indicating various sources of information were most important for nine farmdecisionsFarm dewion’Source of ilizer---BuychemicalsCrops Bid rcentBanksFarm managersCounty ext.Farm magazineBrokersUniv. personUSDA newsComm. newsletterNoncoop. firmCoop. firmUniv. publicationPaid adviserOther farmersFamily/friendsComputer 428110100002201181-- ‘See table 8 for more complete description of sources of information and farm decisions. Percentages for decisions may add to less than100 because some panel members did not record a primary source of information.

for these decisions except for selling livestock where theyplayed a more minor role. The advice of extensionagents, other farmers, and family members was moreheavily sought for decisions involving crops to plant andresponses to farm policy. Banks, financial institutions, andfamily members were important sources of informationfor farm investments and use of credit.Respondents indicated other sources of information usedfor the nine decisions in table 11. While farm magazineswere seldom the most important source of information,they were among the main secondary sources ofinformation for all decisions. This accounts for their highrating as a source of information (table 9). Other farmers,family members, cooperative and noncooperative firms,county extension agents, and university publications wereother heavily used secondary sources of information.Characteristics of farmers making the greatest use ofdifferent information sources are summarized in table 12.Smaller farmers made greater use of county extensionTable 12-Characteristics of farmers making thegreatest use of various sources of InformationFarm characteristic*Source of information’BanksFarm managersCounty ext.Farm magazineBrokersUniv. personUSDA newsComm. newsletterNoncooperative firmCooperative firmUniv. publicationPaid adviserOther farmersFamily/friendsComputer networkSizeoffarmsSSLLLLsTypeoffarm4LCCLCCDegree ofcooperative usesCPPCPCCPPRegionsIO, SEILSEINSESEIOIN, ILIN, ILIO, SEIL, 10IN, SEINL‘See table 9 for more complete description of sources of information.*Blank spaces indicate no major difference in use of information source byfarmers who vary with respect to a characteristic.SGreater use of information source by larger (L) or smaller (S) farmer.“Greater use of information source by livestock (L) or crop (C) farmer.SGreater use of information source by major (C) or minor (P) user ofcooperative.6Greater use of information source by farmer in Iowa (IO), Illinois (IL), Indiana (IN) or Southeast (SE).agents, farm magazines, and other farmers forinformation, while larger farmers made greater use ofcommercial sources. Livestock farmers used farmmagazines and noncooperative firms more forinformation, and crop farmers used commercial sourcesand other farmers more. Major users of cooperativesmade greater use of public sources of information andminor users relied more heavily on private sources.Farmers in the Midwest made greater use of commercialsources of information. Farmers in the Southeast madesubstantially more use of county extension agents forinformation than did those in the Midwest.ServicesServices are an important component of the sales ofagribusiness firms and are often interrelated with inputsales and commodity purchases. Sales of services havebeen and are likely to continue to be a major source ofgrowth. Substantial differences existed in the use of otherfirms to perform farm activities and these varied by sizeof farm (table 13). Use of other firms for financial andbusiness services increased, and use for production-relatedservices such as mixing feed, harvesting crops, andapplying chemicals decreased as farm size increased.Spreading fertilizer was the most frequently usedproduction service and it was not related to farm size.Major users of cooperatives hired other firms forperformance of farm activities more than did minor usersTable 1 a--Percentage of farm actlvlties performedby other flrms, by size of farmGross sales of farm ( 000)Farm 21.61 626.6PercentSpread fertilizerMix feedFarm planningHarvest cropsApply chemicalsBuy animals/poultryStore grainSell animals/poultryPrepare taxFarm recordsEstate planningMarket 6.67

of cooperatives, especially to spread fertilizer, mix feed,and store grain. Field crop farmers made greater use ofother firms for spreading fertilizer, mixing feed, andstoring grain than did livestock/dairy farmers. The use ofoutside firms to perform services was relatively constantamong regions except Southeastern farmers whopurchased substantially higher fertilizer spreadingservices, Indiana farmers who had more feed mixed, andIllinois farmers who made greater use of chemicalapplication and grain storage services.Cooperative involvement in providing services wasmeasured by the percentage of farmers using cooperativesor both cooperative and noncooperative firms for services.This percentage overstates the “cooperative share” of theservice market and is used to show only the relativeinvolvement of cooperatives among different services. Thepercentage of farmers using cooperatives or bothcooperative and noncooperative firms to perform farmactivities did not vary greatly with farm size (table 14).The use of cooperatives to spread fertilizer and storegrain did tend to increase slightly with farm size, but wasoften highest for the mid-size farms (gross sales of 40,000 to 199,999). As would be expected, majo

business of large-farm operators as that of small- and medium-farm operators. Differences among various types and sizes of farms were identified that provide the basis for better serving the needs of farmers. They also suggest niches and business opportunities for cooperatives. Some of the differences among farmers are listed below and their .

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