An Assessment Of Hay Market Institutions And Coordination Functions

The experience of Michigan farmers illustrates the dilemma faced by hay growers: while hay production has received a great deal of attention, hay marketing has been neglected. Supplies of high quality hay can be expanded within the span of a single growing season, but the marketing system generates prices which do not always clear the market and which do not serve as accurate signals to guide planning decisions. More fundamentally, there are no effective market mechanisms to generate those prices, to match buyers and sellers, or to move hay cheaply from surplus to deficit regions. Clearly, this is not because hay is a minor crop. In Michigan, hay is the second largest crop grown on a per acre basis. Apart from the direct economic value of hay, it has some important indirect benefits. Acreage sown to hay is far less susceptible to soil erosion than land that has been planted to row crops. In addition, alfalfa increases the soil tilth and water holding capacity. Hay, especially alfalfa hay, increases the future productivity of the soil through the control of soil erosion and increased fertility. Given the economic importance of hay, why hasn't more effort been devoted to creating more orderly markets? The vast majority of hay is used on the farm where it is produced. While there are commercial hay producers, most of the hay moving to market is surplus production from dairy and cattle feeding operations. Consequently, there has been relatively little producer pressure or effort to improve hay markets. A more compelling reason for this neglect is the heterogeneity of hay. Hay quality depends on stand quality, rainfall, humidity, drying conditions, time and number of cuttings, bale type, and whether or not the operator used artificial drying agents and preservatives. A hay dealer may handle a dozen or more different types of hay. The problem, at least according to some dealers, growers, and buyers, is one of complexity. Any uniform national grading standard must be versatile enough to describe numerous types of hay made under highly variable conditions which have a dramatic effect on quality and palatability. This uniformity is easier to achieve in hay grown in the west than in hay grown in eastern states. Another reason that so little effort has been devoted to improved hay marketing is as old as humankind: resistance to change. In light of the disorganized and fragmented nature of hay markets, the potential for improved economic performance through institutional change is significant.