IDEAS home Printed from
   My bibliography  Save this paper

What Drives Agricultural Profitability in the U.S.: Application of the DuPont Expansion Model


  • Mishra, Ashok K.
  • Harris, James Michael
  • Erickson, Kenneth W.
  • Hallahan, Charles B.


This study uses a financial approach based on the DuPont expansion to examine the significance of specialization and vertical integration on domestic agriculture. The traditional DuPont Expansion decomposes the rate of return to equity into asset efficiency, gross margins, and solvency. We hypothesize that agricultural specialization directly affects the asset efficiency and gross margin of the farm. Specifically, specialization would tend to decrease asset efficiency while increasing the gross margin. On the other hand, vertical integration may affect the gross margin and solvency directly. The effect on solvency would result from the integrator’s use of credit as an incentive. However, the general type of agricultural enterprise integrated may also have implications for asset efficiency. Specifically, livestock operations may tend to have greater asset efficiency than crops. We estimate a system of equations in log space using annual farm-level data from the USDA’s ARMS data, 1996-2006. We include all production regions in the contiguous 48 states, and all farms. We find that specialization and vertical integration are among the key factors driving farm profitability in the U.S.

Suggested Citation

  • Mishra, Ashok K. & Harris, James Michael & Erickson, Kenneth W. & Hallahan, Charles B., 2008. "What Drives Agricultural Profitability in the U.S.: Application of the DuPont Expansion Model," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6413, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea08:6413

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Kislev, Yoav & Peterson, Willis, 1982. "Prices, Technology, and Farm Size," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 578-595, June.
    2. Luca Anderlini & Leonardo Felli, 2006. "Transaction Costs and the Robustness of the Coase Theorem," Economic Journal, Royal Economic Society, vol. 116(508), pages 223-245, January.
    3. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    4. Hirschberg, J.G. & Slottje, D.J., 1999. "The Reparametrization of Linear Models Subject to Exact Linear Restrictions," Department of Economics - Working Papers Series 702, The University of Melbourne.
    5. Allen M. Featherstone & Charles B. Moss & Timothy G. Baker & Paul V. Preckel, 1988. "The Theoretical Effects of Farm Policies on Optimal Leverage and the Probability of Equity Losses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(3), pages 572-579.
    6. Melvin, Jon & Boehlje, Michael & Dobbins, Craig L. & Gray, Allan W., 2003. "The DuPont Profitability Analysis Model: An E-Learning Application and Evaluation," 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri 132522, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    7. Dubman, Robert, 2000. "Variance Estimation With USDA's Farm Costs and Returns Surveys and Agricultural Resource Management Study Surveys," Staff Reports 276685, United States Department of Agriculture, Economic Research Service.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Farm Management;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea08:6413. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.