Iowa By Mark A. Edelman

Extension Public Policy Economist

Iowa State University

Simply put, "Industrialization" is a term that describes the currently continuing process of shifting the organization and control of agricultural production. In a nutshell, we are shifting from a system of dispersed independent family farms that produced bulk commodities for an open market to a more integrated system coordinated by contracts among larger entities--many of which will still be operated by farm families. This new system makes more use of standardized practices and technologies to produce a variety of more specific products and services for a variety of more specific consumer end-markets.

What is Driving the Industrialization of Agriculture? Perhaps the three most dominant factors driving the change are technology, consumer tastes and preferences and the search for value-added markets. New technologies allow new kinds of products to be produced for consumers. New information technologies allow instant access to new consumer markets around the world. Some products desired by various consumer markets require control of production all the way back to the genetics. Entrepreneurial incentives (the drive for higher profits and higher incomes) foster attempts within free enterprise systems to satisfy wants and desires for consumers with ability to pay.

In its purest form, the free enterprise system is not necessarily kind and can be very brutal at times. It does not care who produces what or under what conditions the products are produced. It simply cares about what is produced and whether it can be delivered in the form and time frame preferred by the consumer for the cheapest price possible.

What Factors Can Influence Structural Change? Government sets up the rules of the game for many of the structural change factors involved. But as previously indicated, private sector decision-makers have the most direct control over the factors influencing the industrialization of agriculture.

Government policy on who can farm or own land, access to capital, consolidations and taxes all influence the possibilities of growth for private sectors entities. Regulations on environment, labor markets and management may differentially affect the cost of production for large and small firms. Policy and funding for information, research and technology influences who creates and controls access to strategic information. Policy on markets, marketing practices and market access influence the differential opportunities for firms to grow.

The bottom line is that farm structure evolves from private sector behavior operating within the context of the government policies. Can government control the structural outcomes? Government policy can and does influence the structure; however, the more important question is whether the policy arena and government have the will to determine the preferred industry structure and control the outcome.

Will the industrialization of agriculture completely wipe out open markets and family farmers? No one knows for sure whether the emerging industrial agriculture will totally replace the family farm, open markets and the commodity agriculture that has been the tradition for Iowa and many other Midwestern states. While the trends suggest that segmentation and contracting is and will continue to emerge as the dominant form of industry coordination, an important price discovery role might potentially be played at the margin by the open market commodity production.

In the final analysis, a number of farm types are emerging in Iowa agriculture in response to the industrialization trends. Midwestern farmers currently have more choices regarding which future market segments to be involved in compared to farmers in some other parts of the country where the future structure of each enterprise has already been determined. The next column in this series will focus on the key differences among the emerging types of Iowa farms.

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