- - AGRICULTURAL CORE CURRICULUM - -

(CLF1000)  Advanced Core Cluster: AGRICULTURAL BUSINESS MANAGEMENT

  (CLF1200)  Unit Title:  ECONOMIC PRINCIPLES

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  (CLF1205) Topic:  DIVERSIFICATION AND           Time                  Years
                    SPECIALIZATION              2 Hours                 3 / 4
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           Topic Objectives:  Upon completion of this lesson, the student will 
                              be able 

           Learning Outcome #:

             (E-5)  -  List the advantages and disadvantages of 
                       diversification and specialization.
  
           Special Materials and Equipment:

           References: Castle, E. N., Becker, M. H., & Nelson, A.G.  (1987). 
                         FARM BUSINESS MANAGEMENT: THE DECISION-MAKING PROCESS 
                         (3rd ed.).  New York: Macmillan.
                       Leftwich, R. H. (1976).  THE PRICE SYSTEM AND RESOURCE
                         ALLOCATION (6th ed.).  Hinsdale, IL: Dryden Press.

           Evaluation:  Unit Exam

================================NOTE TO INSTRUCTOR============================
This unit could be taught using group discussion,with either a class 
roundtable or with small discussion groups. Focus on the two activities at the 
end of the unit and have the students keep a record of the major points. 
Define specialization and diversification first, and then open up the 
discussion.  The rest of the material presented should come up in the 
discussion.
==============================================================================

TOPIC PRESENTATION:  DIVERSIFICATION AND SPECIALIZATION

A.  Specialization

    1.  Specialization is the business practice of concentrating production in 
        one or a small number of commodities.

    2.  Farms have tended to become more specialized.

    3.  Advantages of Specialization

        a.  Production can be focused on products that match local physical 
            and biological characteristics (certain crops do well in certain 
            areas).

        b.  The prices of inputs and the sales price in a particular area may
            favor the production of certain commodities.  Transportation costs
            to market may be lower.

        c.  Institutional and social elements in an area may favor the 
            production of particular commodities.  (However, in the long run,

            biological and price factors will overide these influences.)

        d.  Specialization permits the concentration of management abilities.

        e.  With specialization, it is necessary to own only specialized 
            equipment and to use that equipment efficiently.

        f.  Specialized labor is generally available in an area of specialized 
            commodities.

        g.  Economy of scale is possible with specialization.

        h.  Specialization allows the concentration of resources into 
            commodities that are successful in a particular area.

    4.  Disadvantages of Specialization

        a.  If one particular commodity has a bad year--either price or
            yield--it means that the whole operation has a bad year.

        b.  If one particular commodity has a series of bad years, the 
            business may not by able to recover.

    3.  Examples of Specialization

        a.  Farmers in the Corn Belt grow primarily corn, soybeans, beef 
            cattle, and hogs.  They have a comparative advantage in raising 
            these commodities: climate, soil, and markets are favorable.  
            These farmers have specialized in the commodities that give them 
            the greatest economic advantage.

        b.  In Northern California, many farmers have specialized in rice 
            production.  Water is available and the soils are high in clay 
            content; additionally, the markets (including available seaports) 
            are nearby.  However, when the price of rice dropped 
            dramatically, many rice farmers went out of business.

        c.  Growers of nursery products are also specialized in many areas of 
            California; the mild climate makes greenhouses economical to heat 
            and the large population is a readily available market.

B.  Diversification

    1.  Diversification is the business practice of producing a variety of 
        commodities in order to use resources more efficiently or to reduce 
        risk.

    2.  A fruit grower who raises a number of different tree crops is 
        diversified, but the equipment is similar for all of the different 
        trees.

    3.  Advantages of Diversification

        a.  Diversification permits owner-operators to use their own labor 
            more efficiently and over a longer period of time.

        b.  By lengthening the harvest period (depending on the commodities), 
            hired labor may be more efficiently utilized.

        c.  With diversification, income stability may be improved because 
            price and yield fluctuations tend to balance out.

    4.  Disadvantages of Diversification:

        a.  Biological and climatic conditions in the area may favor 
            specialization.


        b.  A large inventory and diversity of equipment may be needed; this 
            adds to the total cost of buying, maintaining, and storing 
            equipment.

        c.  Management abilities need to be as diversified as the selection of 
            commodities.

        d.  More time is spent marketing a large variety of products.

C.  Many growers, especially in California, are able to diversify to some
    extent. They grow a variety of commodities that frequently use similar 
    equipment.

D.  California grows over 250 different agricultural commodities, which allows 
    it to weather agricultural recessions better than many other states.

        __________________________________________________________
        ACTIVITY:

        1.  California is the most diverse agricultural economy in 
            the world.  Identify factors that allow California 
            growers to produce over 250 different commodities.

        2.  Identify California commodities that are grown on 
            diversified operations and commodities that are grown
            on specialized operations.
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12/5/91  LM/sg


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