Farm State of the Union

January 28, 2011

Small family operations make up 88% of U.S. farms, but they only account for 16% of the country's agricultural output

The majority of U.S. farms are small family farms with annual sales less than $250,000, according to the 2010 Family Farm Report conducted by the Economic Research Service (ERS) branch of the USDA. However, even though small family operations make up 88% of U.S. farms, they only account for 16% of the country’s agricultural output.

On the flip side, large-scale family farms (plus nonfamily farms) make up 12% of U.S. farms, and they account for 84% of the value of U.S. agricultural production. Large-scale farms are also more viable businesses than small family farms, with more positive profit margins across the board. The average operating profit margin of small farms were lower, with a few operating with higher profit margins of at least 20%.

Additionally, the recent farm study finds that net farm incomes are 46% higher in 2007 than in 2006, averaging $35,100 per farm. Farms that have annual sales of $1 million or more make up two percent of all U.S. farms (there are approximately 47,600 U.S. farms that are million dollar farms). Million-dollar farms account for 53% of the value of production and produce 60 to 70% of high value crops, hogs, dairy, poultry and beef. Five million-dollar farms account for 35 to 45% of beef, milk and high value crops. Most million-dollar farms and five million-dollar farms are family operations.

Robert Hoppe, study co-author and an economist for the ERS, says that high-value crops, like vegetables, fruits and dairy, play a minor role on small farms, and a much more significant role (44% of production) on very large farms. On the other hand, small commercial farms focus on commodities that do not necessarily require a full-time commitment of labor – like poultry, beef, hay, grain and soybeans.

Many small farm families take on a second or third income from another source. In fact, most small farmers do not earn the majority of their income from farming. Still, small farms account for 23% of the value of production for cash grains and soybeans, 51% for hay, 34% for tobacco and 22% for beef – all significant shares of production for these specific commodities. 

Interestingly, while farming is often thought of as a rural pastime, 39% of farms actually exist in metropolitan areas. Also interesting is the advanced age of principal farm operators – about 28% are at least 65 years old. Why? Many farmers call the farm their home, which makes late retirement possible. And farms with an older principal are often multi-generational, with younger operators present as well.

“In farming, the business is also a place of residence, so it’s easy for a farmer to gradually phase out over a number of years and retire later in life,” says Hoppe. “This is a similar concept to when, about 50 to 75 years ago, many businesses owners would live above their shops and could reduce scale and retire over time.”

From a historical perspective, the number of farms overall peaked in 1935 at 6.8 million, but then fell sharply until the early 1970s as agriculture grew in productivity, farms were consolidated, and farm operators left farming to work in the nonfarm economy. Farm numbers stabilized between the 1970s and 2007, largely due to an increase in very small farms that made up for the declines in midsized farms. Biotechnology, improved animal husbandry, and improvements in machinery and chemicals enabled larger farms to increase their share of sales. Today, there are approximately 2,204,792 farms in the U.S. Median farm-operator household income in 2007 was $54,000. Net farm income averaged $35,100 per farm in 2007, which was 46% higher than in 2006.

In another related report conducted earlier in 2010, Small Farms in the United States: Persistence Under Pressure, Hoppe and his co-authors found that U.S. farm production continues to shift to larger operations, while the number of small commercial farms and their share of farm sales continue a long-term decline. In the future, competitive forces will likely continue to reduce the number of small commercial farms and shift production to larger farms.

“New farmers have traditionally come from farming families. It is more difficult to farm on a small scale than it was in the past, but there are still people that want to get into farming that do not come from farming families, and they are doing it on a small scale. Others are getting into farming on a fairly large scale, sometimes by forming a partnership with other farmers. And then there are some farmers that like the residential lifestyle of the farm and are not necessarily in it for the profit,” says Hoppe. “Farming can still be a good job.”


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