INFLUENCE OF DEGREE OF SPECIAUIATDN OF SOUTHERN MICHIGAN DAERY FARMERS ON EFFICEENCY AND EARNlNGS, 1940 TO 1949 Thai: for the. Degree of M. S. MKCHEGAN STATE COLLEGE Ray 0. Yaufl'or 1955 lHIllHlllllllllllliNWllllIlllll!UHIIIHIIWIHIIIIIW f 312939099 29302. This is to certify that the thesis entitled Effect of Various Degrees of Specialization Upon the Efficiency and Earnings of Southern Michigan Dairy Farmers, 19130 to 19119 presented by Ray 0. Yeutter has been accepted towards fulfillment of the requirements for MOS. degree in Agzicultural Economics Major profess Date March 10, 1955 0-169 ...——-—. INFLUENCE OF DEGREE OF SPECIALIZATION OF SOUTHERN MICHIGAN DAIRX FARMERS ON EFFICIENCY AND EARNINGS, 1940 TO 1949 By Ray 0. Yeutter AN ABSTRACT Submitted to the School of Graduate Studies of Michigan State College of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics Year 1955 Approved During the period 19MO-l949 there was a trend toward greater Specialization in dairying by Michigan farmers. This study was undertaken to determine if specialized dairy farmers have higher incomes or are more efficient than diversified dairy farmers. Anmple of farms from the Michigan Farm Account Study was chosen for analysis. The farms included in this study were [1] located in southern and southeastern Michigan. [2] farm account c00perat0rs throughout the period 1940-U9, and [3] classed as either specialized dairy farms, diversi- fied dairy farms or'dairy-hog farms on the basis of their l9h9 organization. This breakdown of farms was based on the per cent of the productive man work units spent on the various enterprises. The specialized dairy farms were further separated into large and small farms depending on the average number of cows kept. Data from the farm account records of these farms were studied by tabular analysis to find how the four groups compared in farm income and efficiency. Data from the years l9u0, 19h? and 19u9 were also studied by correlation analysis to find the relationship between degree of specialization and efficiency and between size of enterprise and efficiency. Degree of specialization in the dairy enterprise was but one of many factors that affected a dairy farmer's income. Labor income was influenced more by volume of business and relative price levels than degree of specialization. Rate of return on investment was mainly the result of relative price levels. The correlation between labor income and gross income was highest on the specialized dairy farms. Because of this a specialized dairy farmer is more likely to see his gains in gross income evenly reflected in labor income. Stability of labor income was related to size and kind of business as well as degree of specialization. The specialized dairwaarms, however, had a more stable labor income than diversified farms with the same volume of business. This means when planning his organization a dairy farmer should think of eXpense, income and efficiency and not consider diversification solely for the purpose of spreadingrisk. Specialization in dairying had a small, but significant, positive effect on dairy sales per cow. This small relation- ship is important for it means with careful planning a farmer who increases his dairy herd may also increase his income per cow. There was no significant difference among the four groups of farms in efficiency in the use of buildings, machinery andenuipment. In labor efficiency the only signi- ficant difference was that the small specialized dairy farms were less efficient than the other three groups. This means if there were efficiencies connected with specializa- tion in dairy during the period 1940-1949 the specialized dairy farmersin this study did not take advantage of them. This study has shown the importance of volume of business on a farm. Regardless of degree of specialization in dairying or the efficiency with which a farm is operated. a large volume of business is necessary for a satisfactory income. INFLUENCE OF DEGREE OF SPECIALIZATION OF SOUTHERN MICHIGAN DAIRY FARMERS ON EFFICIENCY AND EARNINGS, 1940 TO 1949 By Ray 0. Yeutter A THESIS Submitted to the School of Graduate Studies of Michigan State College of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics 1955 w vvw ACKNOWLEDGEMENTS The author is greatly indebted to many members of the Michigan State College faculty and to friends whose guidance and help have been major factors in making the completition of this thesis possible. Special appreciation is due Dr. K. T. Wright under whose guidance and direction this study was made. Appreciation is also due Professor L. H. Brown, who supervised the study during the period that Dr. Wright was in England and to Drs.L. W. Witt, L. L. Sager and T. I. Cowden for their confidence and encouragement. The author also wishes to thank the farmers who faithfully c00perated in the Farm Account Study throughout the period covered by this thesis. The author is also indebted to his wife, Joyce, for her help and patient encouragement. Any omissions or errors in this manuscript are to be credited to the author. 11 ' . t“ F." . a" ‘J b “-5. ga 1. ‘j P. . . ‘t. , . f ,a L‘: 's TABLE OF CONTENTS LIST OF TABLES . . . . . . LIST OF FIGURES. . . . . . INTRODUCTION. . . . . . . REVIEW OF PERTINENT LITERATURE. TERMINOLOGY USED . . . . . MATERIALS.AND METHODS. . . . HISTORICAL BACKGROUND. . . 0 GENERAL DISCUSSION. . . . . BASIC HYPOTHESES . . . . . TESTING OF HYPOTHESES. . . . Hypotheses on Relationship of Degree of Specialization.and Income Factors. Page Hypotheses No. l -- The rate of return on investment Hypotheses No. 2 -- Labor income Hypotheses No. 3 -- Variability of labor income. . Hypotheses No. R -- The correlation between labor income and gross income. . . Hypotheses on Relationship of Degree of Specialization and Efficiency Factors 0 O O O C Hypotheses No. l -- Expense per $100 of income. . Hypotheses No. 2 -- Labor efficiency . . . . Hypotheses No. 3 -- Dairy sales per cow . . . Hypotheses No. # -- Number of pigs weaned per litter Hypotheses No. 5 -- Income per 31, 000 invested in power and machinery . . Hypotheses No. 6 -- Income per $1, 000 invested in improvements iii vii 10 19 22 25 28 29 29 32 35 37 TABLE OF CONTENTS [continued] Hypotheses on Correlation Between Degree of Specialization and Efficiency Factors . Hypotheses No. 1 -- Dairy sales per cow . . Hypotheses No. 2 -- Number of productive man work units per man . . Hypotheses No. 3 -- Improvement investment per Hypotheses on Correlation Between Size of animal . . . . Enterprise and Efficiency Factors. . . Hypotheses No. 1 —- Number of pigs weaned per litter. . e e e Hypotheses No. 2 —- Dairy sales per cow . . . SUMMARY . CONCLUSIONS BIBLIOGRAPHY. APPENDIXES. Appendix Appendix Appendix Appendix Appendix Appendix Appendix Appendix mmq mu om» Average Expenses Per Farm, Average Gross Income, l9h0 1940-19h9 "' 19l+9 e Average Number of Men Per Farm, 191‘"0 - 19W 0 0 Total Inventory, 1940 - 1949. . . Return for Investment and Management, 1940 " 1949 e e e e Acres in Bed CrOps, 1940 - 1949. . Acres in Cultivated Crops, 1940 -l9h9. Acres in Small Grains, l9fl0- 19u9 . iv Page 62 62 65 66 67 68 69 75 77 81 82 83 at» 85 86 87 88 89 9O TABLE or CONTENTS [continued] Page Hypotheses on Correlation Between Degree of Specialization and Efficiency Factors . . . . . Hypotheses No. l -- Dairy sales per cow . . . Hypotheses No. 2 -- Number of productive man work units per man . . . . . . Hypotheses No. 3 -- Improvement investment per animal . . . . . . . . Hypotheses on Correlation Between Size of Enterprise and Efficiency Factors. . . . . . . Hypotheses No. 1 -- Number of pigs weaned per litter. O O O O O O O O Hypotheses No. 2 -- Dairy sales per cow . . . . SUMMARY . APPENDIXES. Appendix Appendix Appendix Appendix Appendix Appendix Appendix Appendix mew mu om» CONCLUSIONS e BIBLIOGRAPHY. O O O O O O C O O O O O 0 Average Expenses Per Farm, 1940-1949 . Average Gross Income, 1940 - 1949 . . Average Number of Men Per Farm, 19140 " 19LP9 e e e e e 0 Total Inventory, 1940 - 1949. . . . Return for Investment and Management, 1914'0 " 1916 e e e e e Acres in Bed Crops, 1940 - 1949.. Acres in Cultivated CrOps, 1940 -l949. Acres in Small Grains, 1940- 1949 . . iv 62 62 65 66 67 Tables II III IV VI VII VIII IX XI XII XIII XIV LI ST OF TABLE S Page Organization of the Farms in the Three Groups Used in this Study . . . . . . . . . Descriptive Summary for Averages of Certain Characteristics Over the Period 1940-1949 for Each of the Four Groups and the Range of Yearly Averages During the Period . . . . Averages of Certain Characteristics for all Farms in the Michigan Farm Account Study and the Parity Ratio for Michigan, 1940 - 1949 . Average Rate Earned on Investment, 1940 - 1949. Average Labor Income Per Farm, 1940 - 1949 . . Variation in Labor Income Over the Ten Year Period, 19140 " 1914'9 o o e o o e o o 0 Prices Received by Farmers and Livestock Feed Ratios in Michigan, 1940 - 1949 . . . 0 Average EXpense per 3100 Income, 1940 - 1949 . Number of Productive Man Work Units Per Man, 19% " 1949 e o o o o o e o o o 0 Average Gross Income Per Man, 1940 - 1949 . . Average Dairy Sales Per CoW, 1940 - 1949. . . Average Number of Pigs Weaned Per Litter, 19m "' 1.949 e o e o o o o o 0 Income per $1,000 Invested in Power and Machinery, 1940 — 1949. . . . . . . . Income per $1,000 Invested in Improvements, 19% " 191.9 0 e e e e o e o o e o Coefficients of Correlation Between the Percentage of the Productive Man Work Units Spent on the Dairy Enterprise and Certain Efficiency Factors, 1940, 1947 and 1949 . . 13 15 30 33 36 38 he $1 53 57 60 LIST OF TABLES [continued] Tables Page IXVI Coefficients of Correlation Between Number of Litters Farrowed and Number of Pigs Weaned Per Litter, 1940, 1947 and 1949 . . . . . 69 XJIII Coefficients of Correlation Between Average Number of Cows in Herd and Dairy Sales Per CO", 1940, 1947, and. 19£+9 0 s c e o o 0 70 vi Figure 1. 2. 3. a. 5. 6. 7. '8, 9. 10. 11. 12. 13. 14. LIST OF FIGURES Page Type-of-Farming Areas in Michigan . . . . . 14 Average Rate of Return on Investment,1940-l949 . 31 Average Labor Income, 1940 - 1949 . . . . . 34 Relationship Between Gross Income and Labor Income, 1940 - 1949 . . . . . . . . . 40 Average Expense Per $100 of Income, 1940 - 1949. 43 PMWU's Per Man . . . . . . . . . . . 47 Dairy Sales Per Cow . . . . . . . . . 51 Average Number of Pigs Weaned Per Litter, 1914’0 "’ 19,49 0 e e o o o o o o e o o 51-" Income Per $1,000 Invested in Power and Machinery 19L“) " 1949 e o o e o o o o e o e o 58 Income Per $1,000 Invested in Improvements, 19“"0 " 19W 0 e e e e e o e e o o o 61 Relationship Between Percent of Productive Man Work Units Spent on Dairy and Dairy Sales Per COW. 19‘4'9. e o o o o o o o o e e 61‘" Relationship Between the Percent of the Productive Man Work Units Spent on Dairy and the Average NWber Of COWS, 1914’9 e o e o e e o o o 72 Relationship Between Number of Cows in the Herd and Dairy Sales Per COW. 1949 . . . . . . 73 Relationship of the Difference Between Dairy Sales Per Cow Estimated by Number of Cows (Fig. 13) and Actual Dairy Sales Per Cow and the Percent of the Productive Man Work Units Spent on Dairy, 1949 . . . . . . . . . 74 vii INTRODUCTION One of the questions often asked a person who has undertaken or completed a research study is, "Why did you seleet'this particular tapic?' In the author's case, the following bit of history is offered in answer to that question. At the 1940 Lenawee County Farm Management banquet, Hr. Clyde May, then Extension Specialist in Farm Management, asked his audience, 'What are the prospects for the< ‘ 3 V=30 l . 4O . 0 47 5 ° /, Dairy-Hog // 4 -‘ . a /6 48 71.87 ‘ ' 44 . 41 .///4s 49 Gross Income thousands of Dollars 0 - ....-_Hil--l_ . . __ _ . ,_ llllll 111,_1_ __. 013345678m91011131314151617 bl Hypotheses with Reapect to Efficiency In this second group of hypotheses, which deal with the effect of various degrees of Specialization upon the efficiency of farm operation, the tabular analysis method of analysis was also used. Each of the six hypotheses in this group will be considered separately. gypgtheses No. l -- The expense per $100 of income was the lowest on the large specialized dairy farms. Expense per $100 of income is a commonly used measure of the efficiency of a farm business. A low eXpense per $100 of income is, of course, quite desirable. The large specialized dairy farms were eXpected to have the lowest expense per $100 of income primarily because they were larger units. Being larger units, they were more likely to have more efficient Operators who could do a better Job of managing the farm enterprises. The larger units were also in a position to better utilize their power and machinery, thus reducing the expense per unit. -The data in Table VIII uphold this hypothesis. The large specialized dairy farms had the lowest expense per 3100 income seven years during the ten year period and the next to the lowest two years during the period. The ”average eXpense per $100 income of the large specialized dairy farms was $60.b8. This was “.2 per cent lower than #2 the dairy hog farms which were next to the lowest. The data from Table VIII are presented graphically in Figure 5. TABLE VIII AVERAGE EXPENSE pea #100 INCOME 192+0-09 Large Small Year Specialized Specialized Diversified Dairy-Hog Dairy Farms Dairy Farms Dairy Farms Farms 19% $60. 32 ‘63. 75 $67. 29 $68. 23 19n1 ”8.53 65.70 53.08 5u.66 1932 53.50 57.70 57.06 52.09 19u3 6h.05 67.h2 66.97 67.62 1940 59.20 68.23 72.b3 66.28 1945 60.30 62.09 60.50 59.13 1946 56.48 63.36 62.111 57.16 1947 67.26 63.16 ~66.81 57.60 1948 66.88 69.97 70.95 70.60 19u9 68.30 75.h8 77.10 78.23 Average 60.&8 65.69 65.b3 63.16 The dairy-hog farms had the lowest expense per $100. income the other three years. It is interesting to note that the dairy-hog farms, which had the next to the lowest average for the period, were lowest for three years and highest for three years. This was due to the fluctuations in the prices of hogs and dairy products. In years when hogs were high compared to dairy it cost less to produce $100 worth of pork. When milk was relatively higher it cost less to produce $100 worth of milk. 00"" vflflw --"T 43 i 3100 40 .5 30 LARGE SPECIALIZED DAIRY FARMS __...- SMALL SPECIALIZED DAIRY FARMS “""" DIVERSIFIED DAIRY FARMS 30 W-.- DAIRY-HOG FARMS 10 Fig. 5. Average EXpense per $100 of income, 19170-18 0 1940 '41 '42 ' '48 '44 '45 '46 '47 '48 '49 $100 43 4O 3O 30 10 1940 LARGE SPECIALIZED DAIRY FARMS ~-m- SMALL SPECIALIZED DAIRY FARMS ~~~w DIVERSIFIED DAIRY FARMS -—~-~~ DAIRY-HOG FARMS Fig. 5. Average Expense per $100 of income, 19b0-b9 '41 '43 '43 144 -'45 '46 '47 '48 '49 44 The three years hogs had the lowest eXpense per 3100 income hog prices had risen rapidly compared to milk prices. In 19h2 hogs averaged $4 per hundredweight higher than 19nd while milk only averaged $.35 higher per hundredweight. In 1905 hogs averaged $1.10 per hundredweight higher than the year before while milk prices were unchanged. In 1907 hog prices averaged nearly $6 higher than in 1946 while milk prices increased only $.35. The small Specialized dairy farms and the diversified dairy farms had average eXpenses of $65.69 and $65.b3, reapectively, or about 3.5 per cent higher than the dairy- hog farms. While there were some year to year differences between the small Specialized dairy farms and the diversified dairy farms they tended to follow the same pattern. The exception to this was in 1941 when the SXpenses per $100 income on the small Specialized dairy farms rose slightly while the other three groups dropped sharply. This was probably due to an unusual circumstance large enough to affect the group average, on one of the small Specialized dairy farms. Specialization in dairy by itself does not seem to affect‘this factor. This is shown by the fact that while the large Specialized dairy farms had the lowest eXpense per $100 income the small Specialized dairy farms had the highest. It appears that the largest farms with the 1&5 highest volume of business tended to have the lowest BXpenSe per $100 income. This pattern, however, was altered by the year to year variations caused by the relationship between the prices of the various farm products. Hypotheses No. 2 -- Labor efficiency was highest on the large Specialized dairy farms. The largest number of productive man work units per man was SXpected on the large Specialized dairy farms. They were eXpected to have a higher degree of labor efficiency because, being larger farms, they could have more labor saving machinery. The barns on larger Specialized dairy farms were more likely to be arranged so that the herd could be cared for in the shortest possible time, thus increasing labor efficiency. The data in Table IX does not prove this hypothesis. The dairy-hog farms and the diversified dairy farms had the highest average number of productive man work units per man during the period under study. The dairy-hog farms averaged 318 units per man and the diversified dairy farms averaged 317 units per man. Each of these groups had the highest average four years during the period. Data:from Table IX are presented graphically in Figure 6. The large Specialized dairy farms had an average of 308 productive man work units per man during this period; this was 2.8 per cent lower than the two leading groups. #6 The large Specialized dairy farms had the highest average two years during the period and the lowest two years. TABLE DC NUMBER OF PRODUCTIVE MAN WORK UNITS PER.MAN, l9uO-h9 Large Small Year Specialized Specialized Diversified Dairy-Hog Dairy Farms Dairy Farms Dairy Farms Farms 1940 296 257 272 282 1991 277 290 302 308 1992 291 301 315 315 1993 293 292 298 318 1994 312 307 319 334 1995 330 305 346 332 1906 318 300 352 329 1997 308 300 312 331 1998 329 309 311 305 1949 332 281 343 327 Average 308.9 294.2 317.0 318.1 The small specialized dairy farms had an average of 29A productive man work units per man during the period or 0.5 per cent less than the large Specialized dairy farms. The small Specialized dairy farms had the lowest average for seven years during the period and next to the lowest the other three years. The lack of a significant difference between the figures diSprove the assumptions that were made when the hypotheses was formulated. Several factors may account for the f MU ' 0 per man 1+7 400 360 340 W LARGE SPECIALIZED DAIRY FARMS ‘ m SMALL SPECIALIZED DAIRY FARMS \ {.160 ”1.. DIVERSIFIED DAIRY FARMS {1 W DAIRY-HOG FARMS ’l; 13° Fig. 6. Number of productive man work units per man, 1990-49 " so 40 0 “4° '41 '42 043 044 W '45 '40 '47 '48 we 48 incorrectness of these assumptions. One might be the shortage of new equipment and building materials that existed during the period. This would affect dairy farmers most because they could not expand their herds with make- shift buildings and equipment in the same way that hog farmers could. The gutter cleaner, the latest development in labor saving dairy equipment, was Just beginning to be pepular as the period closed so it had almost no affect on the data. Another factor, which may have affected the labor efficiency on the large Specialized dairy farms, is the increased emphasis on sanitation which developed during the period and the increased number of farmers selling fluid milk. The increased amount of time necessary to meet inSpection requirements would lower the efficiency on the farms involved. To further test this hypotheses, gross income per man was calculated. These data shown in Table X, follow the same pattern as productive man work units per man. The differences in gross income per man on the large Specialized dairy farms, diversified dairy farms, and dairy-hog farms were not significant. The gross income per man on the small Specialized dairy farms was significantly lower than on the farms in the other three groups. Ag TABLE X AVERAGE GROSS INCOME PER MAN, 1990-49 Large Small Year Specialized Specialized Diversified Dairy-Hog Dairy Far-s Dairy Farms Dairy Famms Farms 1940 $2.215 $1.861 $1.933 31.845 1941 2,994 2,040 2,742 2,912 1942 3.55? 3.520 3.856 4.139 1943 3.790 3.750 4.130 4.033 1944 4.463 3.956 3.967 4.444 1945 “.943 4.553 5.179 5.030 1946 5.312 5.198 5.787 5.876 1947 6.147' 6.339 6.609 7.224 1948 6.741 6.0 6.330 6.376 1949 6.370 4.982 6,434 6,002 hang-l 4. 653 4,224 4,697 4.788 gmtheses Nu -- Dairy sallagper cow were highest on the large Specialized dairy farms. The highest dairy sales per cow were expected on the large Specialized dairy farms because a farmer who Specialized in dairy on a large scale would be apt to have higher producing cows. Another reason is that the operators of large Specialized dairy farms were more likely to be skilled dairymen who would get the most from their cows. ' The price received for milk affects this factor as well as productionyaer cow. It can be assumed that more of the large Specialized dairy farms had the equipment 50 necesSary to sell fluid milk and, therefore, they received a higher price for their product. The data in Table XI (see, also, Figure 7) uphold this hypothesis. The large Specialized dairy farms had the highest average dairy sales per cow each year of the ten years with an average dairy sales of $278 per cow for the period. TABLE XI AVERAGE DAIRY SALES PER COW, 1940-49 - Large Small Year Specialized Specialized Diversified Dairy-Hog Dairy Farms Dairy Farms Dairy Farms Fame 1940 $133 $119 $109 $101 1941 172 146 133 127 1942 202 183 166 154 1943 239 236 201 190 1944 293 260 235 '225 1945 311 286 253 243 1946 331 328 283 289 1947 353 352 309 298 1948 397 388 356 332 1949 354 327 307 258 Average 278 263 235 222 The small specialized dairy farms were second highest each year during the period. They had an average dairy sales of $263 per cow which was 5.8 per cent lower than the large Specialized dairy farms. _ — _ ———————.—. u-.. . _ _... 51 can 3K) am: 150 £800 150 LARGE SPECIALIZED DAIRY FARMS “”““‘ SMALL SPECIALIZED DAIRY FARMS 1-1.... DIVERSIFIED DAIRY FARMS 100 w- DAIRY-HOG FARMS 50 Fig. 7. Dairy sales per cow, 1940-49 0 1940 '41 '43 '43 '44 I '46 '46 '4? '48 '49 52 The diversified dairy farms had the next to the lowest dairy sales per cow for nine years during the period and the lowest the remaining year. Their average for the period, $235 per cow, was 15.5 per cent lower than the large specialized dairy farms. The dairy-hog farms had the lowest average for nine years during the period and next to the lowest one year. Their average dairy sales per cow of $222 was 20.1 per cent lower than the large specialized dairy farms and 5.5 per cent lower than the diversified dairy farms. These data show that throughout the period both the large and small specialized dairy farms had a higher dairy sales per cow than did the diversified dairy farms or the dairybhog farms. The available data do not indicate whether this difference was due to the speicalized dairy farmers getting a higher production per cow or having a better market for their product. It is likely that both of these t factors were of importance, but this can only be assumed. Another question which the data do not answer is whether the difference between groups is due to the degree of specialization or to the size of the dairy herd. Since both the large and small specialized dairy farms have larger herds than the diversified dairy farms and dairy- hog farms, it is impossible to tell whether the degree of specialization or the size of the herd had the most influence on dairy sales per cow. 53 lgzpotheses N0._4 -- The number of pigs weaned per litter was largest on the dairy-hog farms. It was expected that'the dairy-hog farms would wean a larger number of pigs per litter because a farm operator who had a larger number of hogs was apt to take a greater interest in them and care for them better. He was also apt to have better housing for his hogs, an important factor in weaning more pigs per litter. The data in Table XII fail to uphold his hypothesis; these data are presented graphically in Figure 8. TABLE XII AVERAGE NUMBER OF PIGS WEANED PER LITTER, 1940-49 Large - Small Year Specialized Specialized Diversified Dairy-Hog Dairy Farms Dairy Farms Dairy Farms Farms 1940 6.24 6.85 6.14 6.31 1941 6.77 5.63 7.21 5.84 1942 7.58 6.89 6.62 6.70 1943 7.26 6.03 6.70 5.98 1944 6.05 8.05 5.80 6.09 1945 6.25 6.71 6.45 7.06 1946 6.50 7.50 6.30 6.63 1947 6.00 5.00 6.50 6.18 1948 ---- 8.50 6.44 6.66 1949 ---- 6.67 6.46 6.06 Average 6.58 6.78 6.46 6.35 54 LARGE SPECIALIZED DAIRY FARMS -wu~ SMALL SPECIALIZED DAIRY FARMS ~---~ DIVERSIFIED DAIRY FARMS .111- DAIRY-HOG FARMS Pigs Heaned Per Litter 9 Fig. 8. Average number of Pigs weaned per litter, 1940-49 1940 '41 '42' '43 ' 044 ' '45 '46 '47 '43 '49 55 The small specialized dairy farms weaned the largest number, with an average of 6.78 pigs per litter, during the period. The large Specialized dairy farms were next with an average of 6.58. The diversified dairy farms weaned the third largest number per litter, with an average of 6.46, and the dairy-hog farms weaned the smallest number with an average of 6.35. The small Specialized dairy farms had the highest average five years and the lowest one year. The large specialized dairy farms had the highest average two years and the lowest one year. The diversified dairy farms had the highest average two years and the lowest five years while the dairy-hog farms had the highest average one year and the lowest two years. The extreme year to year variations in these figures indicate that degree of Specialization had little effect on the number of pigs weaned per litter on the farms in this study. Does this mean that Specialization in hogs does not pay? Probably not. It is possible that many of the sows on the dairy-hog farms farrowed earlier in the Spring when then weather was colder and higher losses resulted. These losses may have been more than offset by a higher price received when the pigs were sold. 56 It is also possible that the degree of Specialization in swine on the dairy-hog farms was not great enough to in- fluence the number of pigs weaned per litter. Perhaps farms highly Specialized in swine have equipment and methods that help them save more pigs per litter. The success of many of the corn belt "pig hatcheries'I would indicate that this is true. .gypotheses Ng.w5 —- The income per $1,000 invested in ‘ppwer and machinery was highest on the dairy-hog farms. Income per $1,000 invested in power and machinery is a measure of how efficiently the machinery and equipment on a farm are used. The dairy-hog farms were SXpected to have the highest income per $1,000 invested in power and machinery because hogs require very little equipment which.wou1d not be on any dairy farm. The Specialized dairy farms were also SXpected to have a high income per $1,000 invested in machinery. This is because they have few Side lines that require extra equipment. The value of the equipment used in the dairy enterprise, however, is often very high. The data in Table XIII fail to uphold this hypothesis; these data are presented graphically in Figure 9. The dairy-hog farms had an average gross income of $2,665 per $1,000 invested in power and machinery. The figure for the large Specialized dairy farms, however, was only 0.6 per cent lower and the figure for the Small Specialized 5? dairy farms was but 1.4 per cent lower. The figure for the diversified dairy farms is $2,478, ‘which.is 7.0 per cent lower than the dairy-hog farms. Even this difference is not significant due to the extreme year to year variation in the data. This lack of significance diSproves the idea that dairy-hog farms can obtain a much.greater income with the same level of machinery investment as farms in the other three groups. TABLE XIII INCOME PER $1,000 INVESTED IN POWER.AND MACHINERY, 1940-49 Large Small Year Specialized Specialized Diversified Dairy-Hog Dairy Farms Dairy Farms Dairy Farms Farms 1940 $1,823 $2,239 $2,034 $2,046 1941 2,510 2,159 2,620 2,485 1942 2,648 2,674 2,852 3,010 1943 2.594 2,541 2,672 2,582 1944 2.970 2.965 2.332 2.619 1945 3.054 2.847 2.740 2.775 1946 3,286 2,901 2,831 3,112 1947 2,911 3,281 2,586 3,469 1948 2,728 2,720 2,350 2,584 1949 1.968 1.948 1.763 1.965 Average 2,649 2,628 2,478 2,665 Hundreds of Dollars 58 38 16 13 4 Fig. 9. 1940 . 41 LARGE SPECIALIZED DAIRY FARMS -~-- SMALL SPECIALIZED DAIRY FARMS -—------- DIVERSIFIED DAIRY FARMS ———-—- DAIRY-ROG FARMS Income per $1,000 invested in power and machinery, 1940-49 '42 i43 '44 '45 '46 '47 '48 '49" 59 hypotheses No. 6 -- The income per $1,000 invested in igprovements was highest on the diversified dairy farms. This factor is used as a measure of how efficiently such improvements as building,:fences and tiling were used. The highest income per $1,000 invested in improvements was expected on the diversified dairy farms because, being diversified, they could fit in complementary or supplementary enterprises which would more fully utilize existing buildings. By increasing business without increasing buildings, the diversified dairy farms could have a higher income per $1,000 invested in improvements, even though the total income was lower than the farms in the other groups. The data in Table XIV (see, also, Figure 10) diSprOve this hypothesis. The small Specialized dairy farms had the highest average seven years during the period and an average income of $1,538 per $1,000 invested in improvements during the period. The diversified dairy farms were 3.1 per cent lower with an average of $1,490. The large Specialized dairy farms had an average of $1,390 for the period and the dairy-hog farms were slightly lower with an average of $1,356. The year to year variation is again high, thus reducing the significance of the data. The period 1945 through 1947 accounts for the differences in the averages. During this part of the ten year period the income per $1,000 invested 60 in improvements on the small Specialized dairy farms and the dairy-hog farms was comparatively low. If the figures for the three year period 1945 through 1947 were removed from the data the difference in the averages would be less than 6 per cent. TABLE XIV INCOME PER $1,000 INVESTED IN IMPROVEMENTS, 1940-49 Large Small ‘Year Specialized Specialized Diversified Dairy-Hog Dairy Farms Dairy Farms Dairy Farms Farms 1940 $ 840 4 939 8 846 8 769 1941 1,147 934 1,058 1,116 1942 1.256 1.449 1.394 1.569 1943 1,362 1,450 1,515 1.417 1944 1.595 1.665 1,443 1,441 1945 1.493 1.771 1.768 1.392 1946 1.471 1.941 1.794 1.535 1947 1.569 1.915 1.958 1.354 1948 1.660 1.732 1.717 1.559 1949 1,507 1,588 1,411 1,412 Average 1,390 1.538 1,490 1,355 One reason for these results is the variation between the farms in each group. While many farms in each group make efficient use of their improvements, others are poorly organized and overbuilt. 5' U‘ 'u an! rMamas of Dollars 61 30 LARGE SPECIALIZED DAIRY FARMS __....“ SMALL SPECIALIZED DAIRY FARMS DIVERSIFIED DAIRY FARMS “m DAIRY-HOG FARMS 6 4 Fig. 10. Income per 31,000 invested in improvements, 1940-49 3 0. “‘0 '41 '42 '43 '44 '45 '46 '47 '48 '49 62 fiypotheses with Beepect to Specialization and Efficiency Factors This third group of hypotheses deals with the relation- ship between the degree of Specialization in the dairy enterprise and certain efficiency factors. The relationship will be measured by the coefficient of correlation found between the per cent of productive man work units Spent on the dairy enterprise and the efficiency factors. The degree of coorelation was determined for three years: 1940, the first year of the period and the year when the parity ratio was 85, the lowest for the period; 1947, the year when the parity ratio was 121, the highest for the period; and 1949 the last year of the period when the parity ratio was 104. gypotheses No. l —- The dairygsales per cow were pgsitively correlated with the percentage of productive man work units spent on the dairy enterpriag. This relationship is to be SXpected because farmers who Spend a high percentage of their productive man work units on the dairy enterprise could be SXpected to be interested in dairy cattle and to do a good Job with them. They could also be eXpected to have a better than average herd of dairy cows. This relationship is expected on farms with both large and small herds. That is, a small herd on a farm highly Specialized in dairy is eXpected to yield a higher return per cow than a herd of the same size on a farm less specialized 63 in dairy. The degree of correlation, however, was not ex- pected to be high because of the other variable factors involved. The data in TableXV uphold this hypothesis. There was a positive correlation between the factors each of the three years the correlation was studied. The degree of correlation was so small it only shows that some relationship existed. TABLE XV COEFFICIENTS OF CORRELATION BETWEEN THE PERCENTAGE OF THE PRODUCTIVE MAN WORK UNITS SPENT ON THE DAIRY ENTERPRISE AND CERTAIN EFFICIENCY FACTORS, 1940, 194? AND 19N9 —::_f g l Coefficient of Correlation Efficiency Factor 19#0 19#? 1949 Dairy Sales Per Cow .40“ .505 .5bl Number of Productive Man Work Units Per Man -.132 —.112 .Ouo Improvement Investment Per Animal Unit .096 .038 .00015 The data for 1949 are plotted in Figure 11. The co- efficient of correlation is 0.54 and it can be seen that there is very little grouping around the regression line. An inspection of Figure 11 reveals seven of the 92 farms had less than 30 per cent of the productive man work units spent on dairy, also the dots representing six of these Dairy Sales per cow 61+ '8500 . 475 I 450 425 - - . , 400 ' . .' /' 375 ' / 350 . . - / Y7K: //7+3.23>< I . / y. Z'fz/ 325 . e . , 300 ‘ [/4 ' . . 275 . -‘ x ,. I 350 I ' ° 150 / ‘ 135 / . .100 15 Fig. 11. Relationship Between per cent of Productive Man Work y Units spent on Dairy and Dairy sales per cow, l9h9 0 10 30"” so 4o so "”60 L 70 ”so so” 106% cf Haw-'8 on Dairy 65 seven are well below the regression line. To determine the effect these seven farms had on the regression line they were removed and the correlation determined for the farms having 30 per cent or more of their productive man work units from dairy. With these residual farms the coefficient of correlation dropped to 0.36. This drOp in the value of the coefficient of correlation would seem to indicate that on farms where 30 per cent or more of the productive man work units were spent on dairy there was only a slight relationship between dairy sales per cow and per cent of the productive man work units pent on dairy. This lack of relationship is the result of many factors that effect dairy sales per cow on a given farm. 0n farms Where dairy was an important enterprise, these factors were more important than degree of specialization. Hypotheses No. 2 -- The number of_productive man work E§}t8.2§? man were positively correlated with the:pgrcentage of productive man work units spent on the dairy enterprise. This relationship was expected because farmers specialized in.dairy can concentrate their efforts on fewer enterprises and develop a higher degree of efficiency than can farmers on the less specialized farms. This relationship was expected to be greatest during the later years of the study because more labor saving'equip- ment had become available. This extra labor saving equipment 66 would probably reduce the time spent on the<1airy enterprise more than on other enterprises such as swine and poultry. The fact that operators of less specialized farms with large dairy herds also take advantage of labor saving equipment and methods is expected to result in a low correlation. The data in Table XV disprove this hypothesis. There was no significant correlation between the per cent of productive men work units spent on the dairy enterprise and the productive man work units per man. This supports the data in Table IX which show that over the ten year period the number of productive man work units per man on the dairy- hog farms and diversified dairy farms was greater than on the large and small specialized dairy farms. gypptheses No.p3 --.ghe more specialized dairy farms, as measured byptheppercentage of total productive man work units spent on dairy_cattle, had a lower improvement in- vestment per animal unit. This correlation was expected because dairy cattle require good housing and, on most farms. a milkhouse. The eXpense per animal unit would be reduced if this expense were spread over a larger number of cows. This would reduce the improvement investment per animal unit. Included in the data utilized are those for a number of specialized dairy farms with small herds and a large 67 improvement investment. The data from these farms would reduce the degree of correlation. The data in Table XV disprove this hypothesis. For the three years studied there was no correlation between the improvement investment per animal unit and the per- centage of the productive man work units spent on the dairy enterprise. These results are due to the varied value.‘valuation and use of improvements on the different farms. This would hold true even if more exact valuations were used. Some Operators, regardless of type of farm. would prefer less expensive buildings while others would feel that more eXpensive buildings would pay for themselves in the long run. Perhaps different results would have been obtained if size of herd had been used instead of percentage of produc- tive man work units spent on the dairy enterprise. Such a correlation would have shown if farms with larger herds have the same overhead per unit as those with smaller herds. gypotheses with Respect to Size of Enterprise and Efficiency Factors This fourth group of hypotheses involves the relation- ships between the size and the efficiency of the dairy-and hog enterprises. Again. as with the preceding group of hypotheses. the years 19b0, 19h7, and l9h9 were the basis for analysis. 68 This part of the study should help to determine whether the size of enterprise, regardless of the degree of specialization, is an important factor. The two hypotheses in this group will be considered separately. Hypotheses No.4; -- There was a direct correlation between the number of litters of pigs raised and the number of pigs weaned_per litter. Although this may seem to be a hypothesis with little relation to the subject of dairy farms, it is an integral part of the problem with respect to the dairy-hog farms under consideration. The correlation between number of litters and number of pigs weaned is expected because farmers who raise a greater>number of litters are probably more eXperienced hog men and could be eXpected to put more time and effort into saving more pigs per litter. They could also be expected to have buildings and equipment better adapted to swine. One factor that may tend to reduce the correlation is, the farmers who raise a larger number of litters would pay more attention to markets and have their sows farrow earlier to hit a better market. However, having pigs born earlier in the spring they would run a greater risk of losing pigs during cold periods. The data in Table XVI disprove this hypothesis. Rather than being a direct correlation there was a very slight nega- tive correlation for each of the three years studied. 69 TABLE XVI COEFFICIENTS OF CORRELATION BETWEEN NUMBER OF LITTERS FARROWED AND NUMBER.OF PIGS WEANED PER LITTER, 1940, 19“? AND 19u9 Year Coefficient of Correlation 194? -0.119 One of the possible reasons for this result is mentioned above. Another possible reason is that all the farms studied were dairy farms and, therefore, the hog enterprises on all the farms were relatively small when compared to a specialized hog farm. Pehaps the hog enterprises on the fanms studied were too small to show any advantage in specialization. ‘gzpotheses No. 2 - There waste direct correlation between the average number of cows in the herd and dairy sales per cow. This correlation is eXpeoted because a farmer who has a large dairy herd is probably a better than average dairyman and has a better than average dairy herd. He is also more likely to be equipped to sell fluid milk which will bring a higher price per hundredweight. A farmer with a large herd is more likely to have his cows freshen when the milk will bring a higher price and, if he is on the base and excess plan, he will organize his breeding program 70 so that more cows freshen in the fall and thus he could be selling a high percentage of base milk the year around. The data in Table XVII uphold this hypothesis. There was a fair positive correlation between average number of cows and the dairy sales per cow each of the three years the correlation was determined. The average degree of correlation 0.50, was small but it shows that the relation- ship exists. To find the effect of the smaller farms on the relationship, the correlation was found for 1949 with a few of the smallest farms removed. When the six farms with less than four cows were removed, the correlation dropped to 0.h9 and when the ten farms with less than sevenfland one-half cows were removed the correlation drOpped to 0.h3. TABLE XVII COEFFICIENTS OF CORRELATION BETWEEN AVERAGE NUMBER.OF COWS IN HERD AND DAIRY SALES PER COW, 19NO, 1947 AND l9h9 Year Coefficient of Correlation 1940 0.h20 19“? 0.506 1949 0.588 These figures bring up an interesting problem. In Table XI it was shown that dairy sales per cow were highest on the large specialized dairy farms. In Table XV it was 71 shown that a positive correlation exists between dairy sales per cow and the per cent of the productive man work units spent on the dairy enterprise. In Table XVII it is shown that a slightly higher correlation exists betweentiairy sales per cow and average number of cows. This indicates that number of cows, rather than degree of specialization, probably is the factor that caused specialized dairy farms to have a higher dairy sales per cow. The data from 1949 were studied further to find the relationship between the three factors, [a] per cent of productive man work units spent on dairy, [blaverage number of cows, and [c] dairy sales per cow. The correlation between the percentage of productive man work units spent on dairy and average number of cows was found to be 0.67. This relationship, plotted in Figure 12, makes it difficult to determine which factor was responsible for specialized dairy farms having a higher dairy sales per cow. In an attempt to see what effect these two factors together had on dairy sales per cow, another step was taken. The differences between actual dairy sales .per cow and the estimated dairy sales per cow shown by the regression line in the graph of Figure 13 were determined. These differences were then plotted against the percentage of productive man work units spent on dairy. The graph in Figure 1” indicates that there was no significant pattern tamong the farms having thirty per cent or more of the produc- tive man work units spent on dairy. 72 ' Per cent of r ”NM‘B on I 90 Dairy If "r I 80 ° .... . xfix’“ I 70 ° . .' // 60 . o . 1.’ 1,1,3}, I, 50 O. ° .0 / : Yx=33.3+/./3>< ' ”:0é7 ///. 30 ac , e .- 10 Fig. 12. Relationship between the per cent of the Productive Man 0 woik Units spent on Dairy and the Average Number of Cows, _ 19 9 . _ _ _ -.. - ._ H. . . _ _ r 0 5 10 15 so as so 35 4o 45 so 55 Average Number of Cows (Dairy sales r cow 5380 - 475 F 450 435 400 375 350 385 300 gut jam an 300 [INS 150 up _Hb e' 50 35 73 K: /3g+5.s7>< =.£?S } he herd and Relationship between Number of Cows in t F18. 13. Dairytsalee percow, 191+9 5 10 15 '30 35 30 35 " 4o ' 45”' 50 m"55nnnber or Cows . ”-1 _ ..... —.- all-__., ?-I me...- 74 Mfference in dollarst bNWeen estimated ~ dnry sales per cow (Fig.13) amiactual sales mn§ ni' nO‘ no- 1hr n: so i 60 4o 30 30~ 4O 60 80 100' 130* :Fig in. Relationship of the difference betweenciairy sales per cow issf 15 tual dairy b number of cows (Fig. 13) and ac Ziiéfagzg cgw and the per cent of the productive man work units spent on dairy, 19149 I V- . - , . , so as 5 55 so 35 7° 75 3Q 35 30 35 4O 45 0 i :21" PMWUIB on dairv SUMMARY 1. This study was undertaken in an attempt to determine the effect of various degrees of specialization on the effi- ciency and earnings of dairy farmers. 2. Information for this study was obtained from the summary sheets of farm account cooperators on file in the Department of Agricultural Economics. 3. Data from 92 farms for the ten year period 1940 -- 1949 were studied by means of tabular analysis to determine the effect of various types of operational organization upon farm efficiency and income. #. Data from the summary sheets for l9#0, 19b7, and 1949 were studied by the correlation analysis method to determine relationships between degree of specialization and efficiency. 5. A trend toward specialization in dairy, during the period 1940 -- 19h9, was discovered. This trend was evidenced by [a] a greater number of cows in the dairy herds, and [b] a higher percentage of the productive man work units being spent on the dairy enterprise. 6. Measures of income were related to size of business and relative price levels, rather than to degree of special- ization. 75 76 7. Specialization in dairy had little effect on the efficient use of buildings, equipment and labor, although it did tend to increase the dairy sales per cow. 8. There was a wide variation between the farms of high and low efficiency at all levels of specialization. This indicates that if a farmer is to derive full advantage from the efficiencies of either specialization or diversifi- cation, he must plan his Operations carefully. CONCLUSIONS Effect of Specialization on Farm Income Degree of specialization in dairy was but one of many factors that affected a dairy farmers income. Labor income was influenced by relative price levels and volume of business as well as degree of specialization. Rate earned on investment was mainly the result of relative price levels. The correlation between labor income and gross income was highest on the specialized dairy farms. Because of this a specialized dairy farmer is more likely to see his gains in gross income evenly reflected in an increased labor income. Stability of labor income seemed to be related to size and kind of business as well as degree of specialization. The larger Operations with the higher cash expenses had the more variable income. The labor income on the large specialized dairy farms, however, was less variable than on more diversified farms with the same size of business. This was true because dairying is one of the more stable enterprises and diversification, by adding a less stable enterprise, or enterprises, would increase rather than decrease variability of income. This means that when a dairy farmer is deciding 77 78 how much to specialize he should think in terms of income, cost of operation, building and equipment expense, and efficiency and not consider diversification solely for the purpose of spreading risk. Effect of Specialization on Farm Efficiency Specialization in dairy had a significant positive effect on dairy sales per cow. This relationship, though small, is important. It means that a farmer who enlarges his dairy herd to increase his size of business may also increase his income per cow. The farmer should be careful, however, to consider in what way enlargement of the herd will increase his sales per cow. Will it enable him to have the equipment for a better market? Will he be able to afford a better herd sire? Or, perhaps Justify the equipment to put up grass silage for fall feeding when he is trying to build up his base? The low correlation between size of herd andciairy sales per cow suggests that increasing the size of herd will not automatically increase income per cow; therefore, any increase in herd size should be carefully planned. The idea that by specializing in dairy a farmer will become more efficient in the use of labor, buildings and equipment was not upheld by this study. 79 The diversified dairy farmers in this study were Just as efficient in the use of buildings, machinery and equipment as the specialized.dairy farmers. The small specialized dairy farms had the lowest labor efficiency. The differences in labor efficiency among the large specialized dairwaarms,