Specialized, Diversified, or Alternative On-Farm Enterprise Decisions and the Impacts on Financial Performance Among Small Farms in Tennessee

Renu Ojha, Tennessee State University


Small farms, defined as those with annual gross cash farm income (GCFI) less than $350, 000, account for 90% of the number of farms in the United States and contribute 21.5% to the total agricultural production. Small farms are significant contributor to the U.S. agriculture and their survival is essential. As U.S. agricultural production volume is continually shifting to larger specialized farms, a relevant question is how the payoff and incomes of the small farms can be strategically stabilized for their sustainable continued survival. For small farms, risk minimization or alternative profitable enterprise could be an important aspect to survive, rather than high profit risk enterprise. As suggested by past studies, on-farm diversification can help farmers maximize their farm revenue while reducing risk and uncertainties. Small farms are generally incapable to adopt advanced technology, innovative management practices, and intensive farming techniques. Their most feasible alternative is to practice other on-farm lucrative enterprises. Although many studies suggest enterprise diversification as an effective strategy for mitigating risk, no study explicitly analyzed the determinants of small farm’s strategic decisions regarding specialization and diversification and the impact of such decisions on farm financial performance. This study examines factors influencing the farmer’s strategic decisions on specialization, crop/animal diversification, or the adoption of on-farm alternative enterprises. Additionally, we estimated the impacts of each strategic decisions on farm financial performance using an appropriate Multinomial Endogenous Switching Regression (M-ESR) model which account for selection biases. This study is important in Tennessee because more than 95% of the farms in Tennessee are small. The result shows that the factors such as land holdings, age of the operator, off-farm work, adoption of organic practices, and smartphone use significantly influence the farmers specialization or diversification strategy choices. Additionally, we find that farm financial performance significantly improves when farmers adopt on-farm alternative enterprise(s). The result could help policymakers formulate effective plans and policies to promote adoption of on-farm diversification strategies among small farms.

Subject Area

Agricultural economics|Agriculture

Recommended Citation

Renu Ojha, "Specialized, Diversified, or Alternative On-Farm Enterprise Decisions and the Impacts on Financial Performance Among Small Farms in Tennessee" (2021). ETD Collection for Tennessee State University. Paper AAI28647736.