Does bigger equal a better bottom line?

“Get big or get out,” was the mantra often chanted in the 1980s by Gippsland dairy farmers. And they did, sort of. Our farm is a collection of three 1970s family farms but we’re still not truly big – very much average at what is now 252 milkers.

In the November edition of our local dairy newsletter, How Now Gippy Cow, Daniel Gilmour analysed five years of stats from the Dairy Industry Farm Monitor Project to see whether big farms are generally more profitable. They were.

“Over the period average return on assets has been negative 0.6 for small farms…and 7.1 per cent for extra large farms.”

Of course, having an extra-large farm (defined in this case as having more than 500 milkers) is no guarantee of profitability. As Daniel Gilmour points out, “When increases in production are less than the proportional increase in inputs, diseconomies of scale occur.”.

Big farms often mean big overheads and big debts, which can see you come unstuck during volatile times. Having noted that though, the extra-large farms continued to fare the best during the GFC price crash. Makes you wonder.

3 thoughts on “Does bigger equal a better bottom line?

  1. “Get big or get out” is often misquoted. The real statement that was made at a Farmworld opening by a prominent politician was in fact “get big, get efficient or get out”. The truncated misquote has upset smaller farmers for years as it implied there was no future for that scale of operation.

    The bit that got left out of the quote and has been lost as time moved on is the most important bit. Effficient farms at any scale will beat inefficient ones because by definition they have higher productivity.

    Larger farms can become over stretched and lose efficiency in corporate models that lose touch with managing a complex production system. Family farms are great structures that can enhance efficiency when the owners are the operators and are across all facets of the business and doing everything well.

  2. Quote – “When increases in production are less than the proportional increase in inputs, diseconomies of scale occur.”.

    That in my book is “The law of diminishing returns”

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