The critical mass concept is based on the idea that a certain amount of agricultural activity must be sustained in order for the agricultural economy in an area to remain viable. As production levels decline below a given threshold, costs will rise, and support businesses will close or relocate. If the input and output firms exit the region, the closest input supplier may not only be farther away for a farmer but may also charge higher prices for inputs, veterinarian services, and equipment repairs. Similarly, if the nearest processor goes out of business because it cannot cover its fixed costs due to an insufficient supply of a commodity to process as acreage decreases, the nearest outlet for the product could involve additional transportation costs and/or a lower purchase price, either raising farmers’ production costs or decreasing their revenue. A decline in agriculture profits and thus a higher relative return for conversion to other uses such as residential housing or forestry may increase the rate of loss of farms and farmland in the area. Particular agricultural sectors may need a certain number of acres, production or sales to remain viable. Thus at the very least, if the area lost this needed size, farmers would be forced to shift to other commodities or livestock options to remain profitable.
Is There a Critical Mass of Agricultural Land Needed to Sustain an Agricultural Economy? Evidence from Six Mid-Atlantic States
Agricultural and Resource Economics
Janet Carpenter and Lori Lynch
College Park, MD: University of Maryland
November 01, 2002
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Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia