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Farm-Level Data Use in Individual and Group Extension Settings
2005 AAEA Organized Symposium Michael Langemeier
Professor Kansas State University
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Presentation Focus
This presentation will focus on the use of farm management association panel data for extension, teaching, and research purposes.
Farm management association data is used by farm management association members, farm management association economists, and in extension, teaching, and research programs.
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Outline of Presentation
Individual Farm Level Use Financial Performance Benchmarks Applied Analysis
Competitive Advantage Productivity
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Individual Farm Level Use
Summary of annual data Trend analysis
Three year summary of key production and financial variables
Five year summary of key financial performance benchmarks
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Financial Performance Benchmarks
Key Measures Profit Margin Asset Turnover Ratio Economic Total Expense Ratio
Labor and Asset Utilization
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Kansas Farm Management Association (KFMA) Data
Farms with continuous data (924 farms) 1995 to 2004 10-Year Averages:
VFP: 211,355 NFI: 43,496 Total Assets: 733,429
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Profitability
Operating Profit Margin Ratio (Net Farm Income + Interest – Unpaid
Labor) / (Value of Farm Production) Average:
(43,496 + 14,874 – 35,321 / (211,355) = 0.1091
Top quartile: OPMR = 0.2160
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Profit Margin Ratio, KFMA(1995-2004 Average)
0.1091
-0.1795
0.08560.1583 0.1822
-0.400
-0.200
0.000
0.200
0.400
All < 100 100-250 250-500 > 500
Value of Farm Production
Ratio
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Financial Efficiency Asset Turnover Ratio
(Value of Farm Production) / (Average Total Assets)
Measures the effectiveness of the farm in utilizing assets.
Average: (211,355) / (733,429) = 0.288
Top quartile: ATR = 0.383
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Asset Turnover Ratio, KFMA(1995-2004 Average)
0.288
0.167
0.266
0.3300.374
0.000
0.100
0.200
0.300
0.400
0.500
All < 100 100-250 250-500 > 500
Value of Farm Production
Ratio
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Financial Efficiency
Total Expense Ratio Includes cash expenses and depreciation.
Economic Total Expense Ratio Includes cash expenses, depreciation, and
opportunity charges on unpaid labor and owned assets.
Average = 1.114 Top Quartile = 0.955
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Farm Size and Economic Total Expense Ratio
1.114
1.528
1.1521.043 1.005
0.00
0.50
1.00
1.50
2.00
All < 100 100-250 250-500 > 500
Value of Farm Production
ETER
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Farm Size and Economic Total Expense Ratio
Economies of Size
0.0000.5001.0001.5002.0002.5003.0003.5004.0004.500
0 250 500 750 1,000 1,250 1,500
Value of Farm Production ($1,000)
ET
ER
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Applied Analysis
Competitive Advantage Productivity Technical and Cost Efficiency Financial Stress Credit Rating Crop Insurance
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Applied Analysis: Competitive Advantage
Paper presented at the 2003 SAEA Meetings Jeffery Morgan
Agricultural Loan Officer, Clyde, Kansas Michael Langemeier
Professor, Kansas State University
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Introduction Neoclassical Theory
Profit opportunities are short-lived because it is easy to imitate other firms.
Firms are homogeneous except for scale. Resource-Based Theory
Heterogeneity of resources. Imperfect mobility of resources. Some firms consistently earn above
average profits.
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Objective of Study Examine sustained competitive
advantage for a sample of Kansas farms.
Variability in per unit cost: Weather Managerial Ability
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Methods
Nonparametric Efficiency Approach Farm’s efficiency in each year is measured
relative to the efficiency of other farms in that particular year.
Overall Efficiency Technical Efficiency Allocative Efficiency Scale Efficiency
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Methods Overall Efficiency Categories
Above Average Insignificant Below Average
Farm Characteristics Farm Size Farm Type Expense Ratios and Profitability
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Methods If uncontrollable factors such as weather are
the primary factors that explain differences in the cost of production between farms, there will be very few farms with above average overall efficiency levels.
Resource based theory suggests that it is possible for a relatively large proportion of the farms to have a competitive advantage or disadvantage.
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Kansas Farm Management Data
224 Farms Continuous data from 1982 to 2001 Average gross farm income = $252,626 43 farms had a gross farm income below
$100,000 16 farms had a gross farm income above
$500,000
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Kansas Farm Management Data Inputs
Labor Purchased Inputs Capital
Outputs Beef Milk Swine Crops Hay and Forage Miscellaneous Income
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Kansas Farm Management Data
Farm Characteristics Gross Farm Income Farm Type Economic Total Expense Ratio Profit Margin Ratio
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Results
Overall Efficiency Above Average: 0.7800 Below Average: 0.4752
Farm Type Farms in top category had significantly
higher proportions of income coming from dairy and swine production.
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Results
Gross Farm Income Above Average: $395,650 Below Average: $147,103 Only 2 of the 43 farms with GFI less than
$100,000 were in the top category. 10 of the 16 farms with GFI greater than
$500,000 were in the top category.
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Results
Economic Total Expense Ratio Above Average: 1.0206 Below Average: 1.2964
Profit Margin Ratio Above Average: 0.1864 Below Average: -0.0260
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Summary
27% of the farms had a sustained competitive advantage
34% of the farms had a sustained competitive disadvantage
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Applied Analysis: Productivity
Work in Progress Paul Clark
Graduate Student, Kansas State University Michael Langemeier
Professor, Kansas State University
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Introduction
Productivity measures are used to monitor individual firm and industry performance over time.
Panel data is needed to examine productivity differences among firms.
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Objectives of Study
Examine productivity of individual Kansas farms.
Relate individual farm productivity to farm size.
Examine output and input bias.
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Methods
Malmquist Productivity Indices Productivity can be decomposed into
technical change and efficiency change. Technical change can be further
decomposed into output bias, input bias, and the magnitude component.
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Kansas Farm Management Data
195 Farms Continuous data from 1984-2003 Focus on crop, beef, and crop/beef farms Average gross farm income = $232,236 30 farms had a gross farm income below
$100,000 10 farms had a gross farm income above
$500,000
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Kansas Farm Management Data Inputs
Labor Purchased Inputs Capital
Outputs Wheat Feed Grains Oilseeds All Hay and Forage Beef Other Income
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Results
0.9764 1.0675 1.0216
0.00
0.50
1.00
1.50
2.00
Bottom 10% Top 10% All Farms
Productivity Category
Index
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Results On average, most of the productivity
change was due to technical change rather than efficiency change.
Inefficient firms often do not “catch up” to efficient firms.
Productivity and Farm Size Small Farms 1.0213 Large Farms 1.0328
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Results
Technical Change and Output Mix Technical change was positively related to
feed grain production. Technical Change and Input Mix
Technical change was negatively related to labor use.
Technical change was positively related to purchased input and capital use.
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Current Ratio, KFMA(1995-2004 Average)
2.50
3.88
2.57 2.392.00
0.000.501.001.502.002.503.003.504.004.50
All < 100 100-250 250-500 > 500
Value of Farm Production
Ratio
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Debt to Asset Ratio, KFMA(1995-2004 Average)
0.2850.183
0.282 0.310 0.339
0.000
0.200
0.400
0.600
0.800
1.000
All < 100 100-250 250-500 > 500
Value of Farm Production
Ratio
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Financial Stress
Definition of Financial Stress Negative Return on Equity
Net farm income minus unpaid labor is negative.
High Debt to Asset Ratio Debt to asset ratio greater than 0.70.
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Financial Stress, KFMA(1995 to 2004)
Percentage of Farms (10-Year Averages) Negative Return on Equity = 52.90% High Debt = 10.85% Financially Stressed = 7.40%
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Percent of Farms with Negative Return on Equity
0
10
20
30
40
50
60
70
80
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Perc
ent
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Percent of Farms with High Debt
0
2
4
6
8
10
12
14
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Perc
ent
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Percent of Farms Financially Stressed
0
2
4
6
8
10
12
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Perc
ent
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Financial Stress, KFMA(1995 to 2004)
Percentage of Farms No Financial Stress = 78.90% Financially Stressed over 50% of Time =
4.44% Financially Stressed every Year = 0.43%
No Debt = 3.25%
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Labor Use and Efficiency
KFMA Data Farms with continuous data (924 farms) 1995 to 2004 10-Year Averages:
Number of Workers = 1.46 Total Acres = 1,739 VFP = 211,355 VFP per Worker = 144,964
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Change in Number of Workers per Farm Over Time
1.35
1.45
1.55
1.65
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Num
ber
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Change in Total Acres per Farm Over Time
1550
1650
1750
1850
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Num
ber
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Change in Total Acres per Worker Over Time
1000
1050
1100
1150
1200
1250
1300
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Num
ber