The Role of Community and Farm Characteristics in Farm Input Purchasing Patterns

Abstract

This work uses unique data from three dairy-dependent communities in rural Wisconsin to test established theory and empirical studies that link farm structure to local purchasing patterns. A theoretical model of purchasing choices is developed to derive the demand determinants of local purchasing. This model is tested empirically across eleven major dairy farm inputs using a double-bounded Tobit model that also includes community characteristics. The empirical estimations find little support for a general linkage between farm-level characteristics and local purchasing patterns. The results do suggest that different community characteristics provide some explanations for diverse purchasing patterns. W alter Goldschmidt's widely cited but contentious finding that farm size was the most important cause of socioeconomic differences in two rural communities in California, has provoked more than a half a century of research analyzing the relationship between farm structure and rural economic development (e.g., Gilles and Dalecki; Heady and Sonka; Lasley et al.; Strange; Zeuli and Deller). Testing Goldschmidt's premise that smaller farms purchase a greater share of their inputs locally, and thus provide an essential foundation for vibrant rural economies, is a common line of inquiry within this body of literature (e.g., Chism and Levins; Foltz, Jackson-Smith, and Chen; Henderson, Tweeten, and Schriener; Korsching; Lawrence, Otto, and Meyer; Roe and Stockberger; Marousek). Although each of these studies has added insights into the issue, as a whole they offer no definitive support for the hypothesis that farm size is a key indicator of where farm inputs are purchased. Instead, they collectively suggest a more complex situation. A myriad of farm and farmer characteristics can drive input purchasing patterns and the relative importance of each characteristic depends on the good or service being purchased.