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Small Farms? Who Said They Were Going Out Of Business?

By Stu Ellis, University of Illinois | The Cattle Network

The 2008 Farm Bill created the ACRE program to target farm support at the combination of yield and price risk, giving farmers a chance to protect their revenue, without encouraging additional production, which had been an international complaint about US farm programs. Critics of farm programs want support pulled from large farms and targeted toward small farms. Others who weigh into the debate promote specific commodity supports, since they are staples of the US diet, such as corn, wheat, and soybeans. But the folks who have to do the work to figure out just who should be supported and those who should be ineligible do not have an easy job. That is quite evident in USDA’s report on “small farms.”

Everyone in agriculture has their own definition of a small farm, a large farm, a family farm, a corporate farm, and every definition is different, since it is compared to one’s own farm. But USDA agricultural economists who are forced to set parameters and specific financial boundaries have provided a glimpse into the foggy world of definitions when they reported to an international economics conference on whether small farms in the US were declining or persisting. (And they report that a fair share of them is doing quite well, financially, thank you!)

There have been quite a few dynamic forces in US agriculture in the past 25 years, and the so-called “small farm” has been one of those. As critics of US farm policy became louder for various reasons, they have continued their support for small farmers, which are usually seen as those with a few hardscrabble acres, a milk cow, some chickens, and a poor family trying to eke out a living with 50 year old two row machinery. Despite that Norman Rockwell version of US agriculture, USDA uses a definition of small farms based on sales from $10,000 top $250,000. The 2007 Ag Census found 676,160 of them in the US, but that was a 40% decline in the past 25 years. Some observers may say that is a function of the financial parameters, and commodity values increasing over time. But USDA also reports the number of farms with less than $1,000 in sales increased by 171% and make up one-third of all farms.

Between 1982 and 2007 the number of farms with sales exceeding $1,000,000 grew by 239%, which means that larger farms are producing more foods. For those large farms in that 25 year period, average corn acreage grew from 200 to 600, soybean acres grew from 243 to 490, and wheat acres grew from 404 to 910. In that same category, the average number of broilers grew from 300,000 to 681,000, the average number of hogs grew from 1,200 to 30,000, and fat cattle grew from 17,532 to 35,000 head.

But the nearly 700,000 small farms still contributed substantially to US production, with total sales of $42.6 billion in 2007, equal to that of IL, IA, and IN. Small farms generally focus on beef cattle, poultry, grains and oilseed production and together produce 70% of the production in each of the three classes in that category. Small farms account for over 55% of poultry production and 40% of hay production, along with 20% of cash grains, but handle only small percentages of cotton, high value crops, and dairy. When it comes to receiving farm program payments, the USDA economists report, “Large farms ($250,000-$999,999) account for nearly half of program crop production and they received over 40% of all payments. Small commercial farms received 27.4% of commodity-related payments.”

Small farm operators tend to be older, say the USDA economists, with 37% over the age of 65 years, compared to 15% of farmers older than 65 who operate farms in the largest classes. And when USDA looks at the operator, he is winding down. “When we add in occupational choice, we see that most operators in the smallest classes report that they are retired or that their principal occupation is off the farm. Many small farms are in transition; while some may be aiming to transition to a larger operation, others are run by older farmers who are cutting back their activity and transitioning to retirement.”

Are small farms barely scraping by, or doing well financially? Their financial performance in 2007 shows a growing operating profit margin that increases with gross cash farm income. Those with the least income generally have negative operating profit margins and return on equity, but that turns around once gross income reaches $100,000. However, those small farmers who are operating in the red, are not necessarily in poverty. USDA say substantial amounts of off farm income are reported in households where farm earnings would not be sustainable. USDA adds, “Many of these households with the smallest farm operations may farm as a consumption activity—farming is how they spend their money.”

The analysis indicates that favorable returns and off-farm income have helped small farms to survive and persist, despite being small, and being family operated businesses. They still dominate US agriculture, but the major bulk of production continues its shift to larger sizes of family farms.

Small farms were one of the fastest growing segments of agriculture in the last five-year Ag Census, but over the past 25 years, small farms have declined in numbers, but not totally in productive capacity. Small farms focus on beef, poultry, and grain and oilseed production and contribute 70% of the production in those categories. However with changing dynamics in agriculture, the production will shift to larger farms, although still those that are family operated.

Source: Stu Ellis, University of Illinois

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