Diversify and/or integrate – an option or a necessity?

We often recommend diversifying activities, especially on a rural property. Is this the right recommendation? That's the big question.

We have no doubt about the importance of diversifying activities for the survival of a company. However, diversification will only be interesting if there is something in common between the different activities. Mainly, if one of the activities contributes to reducing the average cost of another activity. This is called economy of scope.

Until very recently, we were more concerned with economies of scale “than is one that organizes the production process in such a way that maximum use of the productive factors involved in the process is achieved, seeking as a result low production costs and an increase in goods and services”. In many cases, when seeking to increase scale with the aim of reducing the cost of each unit produced, there may be a reduction in productivity due to the difficulty in managing the process.

However, for any human activity, there will be a point where, below or above it, a bottleneck is identified in the production process, especially due to the increase in production costs.

More recently, the circular economy has emerged.”is economic model in which planning, supply, production and reprocessing are designed and managed, both as process and outcome, to maximize the functioning of ecosystems and human well-being”. This new concept needs to be considered, both by those who produce and those who consume.

In response to the question asked in the first paragraph of this article, after these brief concepts, I understand that there is no doubt about the importance of diversification. However, the concepts presented here need to be considered.

Sustainability necessarily involves integration and intensification, terms that have some similarity between them.

Here, we will consider integration as the set of activities where the fundamentals of "economy of scope” are considered, and more than that, they are exercised. Think of any rural property, where the producer combines poultry farming with corn farming , that is, there is some type of relationship between the activities. In the present example, poultry farming waste is used as fertilizer for corn crops. Considering that a ton of poultry farming waste has a lower value than the equivalent chemical fertilizer, the use of the residue will contribute to the reduction of production costs. Considering that the residue, in addition to providing nutrients for the corn plants, provides an improvement in the biological attributes of the soil, the physical productivity of corn with the use of the residue can be greater than that which would be obtained with chemical fertilizer.In this case, poultry farming contributes to reducing production costs and improving corn productivity and also improves the productive potential of the soil. By removing the chemical fertilizer and introducing poultry farming waste into the system. Therefore, if corn is the main component of the feed to be fed to birds, it will have a lower cost and should therefore be more profitable.

Another example of diversification is the system where after the soybean harvest, in part of the area, a corn and brachiaria consortium is implemented. Once the corn is harvested, the forage will be used to provide roughage for cattle. There is integration and intensification (soy, corn and meat), a model that is sustainable. Intensification could also be achieved through irrigation, where in the same area, it is possible to harvest, for example, soybeans, corn, wheat, beans; chickpeas, among other species.

Technological intensification is considered by several authors to be one of the main paths to the growth of Brazilian agricultural production. Likewise, the plurality of activities, as long as they are carried out in a planned manner, considering all the necessary fundamentals, also constitutes a significant strategy for increasing agricultural production.

In conclusion, we can state that diversifying and/or integrating is a decision that, if taken based on the necessary information, will contribute to the sustainability of a rural property, regardless of its size. It could even be a strategy for small farmers to protect themselves from market imperfections. To achieve this, it is necessary that, in the diversification/integration process, activities are planned so that external dependence is reduced, that is, that the producer begins to produce part of what, under other conditions, he would have to seek from the market, often at low prices.