transportation economics ag bm 102. introduction transportation costs are a defining issue for rural...
TRANSCRIPT
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Transportation Economics
AG BM 102
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Introduction
• Transportation costs are a defining issue for rural America
• Far from markets, far from source of purchased inputs - Alaska
• It makes farming in isolated areas less profitable
• Lowers land prices
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Efficient Organization within Market Areas
• How big should schools be?
• How big should hospitals be?
• How big should milk plants be?
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• Area in circle grows with square of radius
• Therefore cost of getting more goods increases, but at a decreasing rate.
• The last mile gained more new area than the one before
• Amount of output per square mile affects collection or distribution costs – Red line is Midwest (no mountains) Blue - PA
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Consolidating Schools
• Bigger school can offer more programs
• Efficiencies of administration
• Richer curriculum
• Have a better football team
• But students must come farther
• Long rides on a school bus
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Economics of hospitals
• Small hospitals very expensive to run• Surplus beds• Lack of specialized doctors• Insurance costs• Big hospitals require more patient travel• Plus travel for their families• Helicopter • Hotel stays
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Grocery stores
• Large stores have more inventory
• Can have more non-foods
• Efficiencies of management
• Customers must travel farther
• Supermarkets killed corner grocery (and small town grocery)
• Further growth created convenience stores
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Market Boundaries
• Transport costs create captive markets
• They also create logical market boundaries
• Consider two factories each paying $9/ cwt. for potatoes at the plant gate
• If market B wants more milk raises price and boundary moves
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Concluding Comments
• Once you understand transport costs some things in rural America make more sense
• How many feed mills are needed?
• How many milk plants?
• How many Sheetz stores?
• Transportation costs are real and sizeable
• They affect behavior in predictable ways