Professor Mark J. Perry's Blog for Economics and Finance
According to the USDA, 91.20% of all U.S. farms were classified in 2003 as "small family farms" and those farms produced only 27.1% of the total farm output (see chart above). The other 8.8% of U.S. farms are "large-scale family farms" or "nonfamily farms," and those two groups produced almost 73% of all farm output.
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
8 Comments:
Comparing the number of farms and their production is totally meaningless, except to the extent that a misleading meaning is implied or inferred. A more useful number would be the production per acre under tillage. This is of course implied in the very labeling used by the USDA: 'Small ...'
What's also interesting about that study: Table 2 shows that 26.7% of farmers are over 65 years old. We still have a replacement problem.
A more useful number would be the production per acre under tillage.
No, that would be an "also interesting and useful" number. I disagree that it would be "more useful." Comparing the number of farms and their production can indeed be meaningful-- for example, it can help demonstrate just how much of farm subsidies goes to wealthy large farms instead of small farms.
In my county, it is more like 73 years old. I'm a young whippersnapper at 60. But, with an average size farm here worth several million, there is almost no opportunity for new farmers, if they don't come from the family.
And, the average size farm here cannot support a family: at best it provides some supplemental income. They may break even or make a samll profit on operational costs and provide some home grown food and game for the family. But if you consider the value of land rent, it is a dead loss. As a result, farm children are reluctant to enter the business.
The large family farms and commercial farms have the capital and expertise to improve their production subsantially, smaller farms are both capital and labor constrained because they must be supported by off farm work.
Small farms themselves are subdivided into varous categories. some are farms in name only, and are really just estates or lifestyle farms. These have no production and drag the average down for all small farms.
The largest of the small farms border on being competitive with the large family farms. They have substantila production but they may be more variable, and cash constrained. They profit some years and not others.
Medium sized small farms may be in active production, but they operate on a part time basis. They may provide as much as 20% of family gross income and yet operate at a small profit or even a loss. Despite that they provide substantial income to the community through purchases of farm related equipment and supplies. In that sense they act as a funnel bringing off-farm income into the local community. For my farm that's around $25,000 a year.
Finally, there are niche farms that specialize in some small market, or are able to vertically integrate. These can be very profitable, but such niches are notoriously faddish and unstable.
Also, small farms may sell some timber every 20 years or so and get a big one-time boost in income that makes their overall profit better than it appears on a yearly basis. And, there is, necessarily, an element of land speculation in such operations. Scratch a farmer and you will find a developer.
As one of my farm neighbors put it, waving his hands up an down, palms up, "Every year I have to weigh my options: $50,000 a year vs $6 million, and get the heck out."
Neither is production the whole story. Farms pay the same tax as anyone else on their residence and two acres. Plus they pay tax on all the other structures, at residential rates. Then they pay additional tax on the vacant, agricultural, land, but at a lower rate.
The county provides almost no services to this land so tax on vacant land is like free money to the county, and it is a windfall in lower taxes for all the residentiall citizens. Overall, farms pay twice as much in taxes as they get in services.
No wonder residential citizens are so vocal about wanting to "save our farms". Notice the use of "our".
"Saving" the farms prevents residential construction, which raises the value of homes in the area. In my county, they claim every home not built saves the county $2700 a year in services provided over taxes paid. Any home valued at less that $750,000, they claim represents a tax loss.
This is a bogus claim in my opinion because the average home here is only around $300,000, and yet the bills still get paid, somehow. It turns out that real estate tax only represents a third of the counties revenue, a fact they seem to ignore in their tax loss analysis.
Nevertheless, I'm willing to accept the county's claims at face value. So I say to them "If you really want to "save" the farms, then why are you taxing us at twice what we cost?"
"You claim I'm saving "the taxpayers" $2700 a year for every house I don't build, but you don;t consider that the income to me, one taxpayer, would be far greater than $2700 a year. You are actually borrowing that "savings" from me, and you aren't paying me any interest on it."
Needless to say, they hate to see me at the public meetings.
Well run farms provide a lot of other benefits to the community for which they are not paid, like clean watersheds. In one county (not mine) 65% of the land must be left in its natural state, and may not even be farmed.
In my county, there was recently a ruckus over additional restrictions proposed for some farms, because they were adjacent to the county reservoir. Under those proposals some farmers would not even be allowed to drive their tractor from one end of the farm to the other, for fear of a fuel spillage in a creek that fed the reservoir.
As one official put it "If these people are fortunate enough to own one of our most valuable resources (the watershed) then they should expect to be stewards of it."
My response was "Being a steward is an honorable profession, but if the 30,000 people who depend on the reservoir want stewards, then they should expect to pay them, otherwise they have not got stewards, but slaves."
The Christian Science Monitor recently pointed out that trees are worth more dead than alive. If we want to keep them alive, we are going to have to pay market price to keep them that way. I may cut timber soon. I hate to do it, and I know my neighbors will complain, but I can't pay to grow them indefinitely and get nothing back (unlike many but not all, of mey farm neighbors.)
My point being that production of small farms doesn't truly measure the value they provide. The way people talk about "our" farms and "our" resources, and how they should be maintained indicates to me considerable cofusion over various kinds of private and public property rights and public benefits, often claimed for free.
There are huge variations in how farms are treated from county to county. In one neighboring county, if you can vaguely tie an activity to use of the land, then it is an allowable farm business activity. In other counties, any kind of agritourism like hayrides or farm markets are considered commercial, and not allowable on agricultural land.
I'm surprised that the production figures aren't even larger for th largest farms: I would have guessed it was 85% or higher. Certainly the farm subsidies go almost entirly to the largest farms, when arguably it is the smllar ones that need help the most.
RH
The other interesting fact is that in recent years, 85-95% of farm household income has come from off-farm sources.
"even among the largest farming operations (the 8% of farming operations with annual sales exceeding $250k), off-farm income accounts for 24% of farm household income, on average. For the 82% of U.S. farming operations that have annual sales of $100k or less, off-farm income typically accounts for all but a negligible amount of farm household income."
...and we wonder why the average age of farmers is going up.
Well, there is a bright side, I suppose. If small family farms continue to die out, then they won't be able to used as props for the ag subsidies that really mostly go to the large farms that produce most of the crops.
John,
This report helps to highlight that small farms are not growing the same crops as larger farms. In other words, the crops they produce do not garner subsidies. Since small farms cannot compete with larger farms which offer economies of scale, they instead specialize on crops with lower labour inputs, like beef.
The issues go beyond subsidies and lobbying. What few people understand is that the world food supply relies on 3 major staple agricultural crops, namely, wheat, rice and maize (corn). These are the crops that are getting subsidies because they represent, in effect, a major portion of the present world diet.
I can appreciate that when people look at spikes in corn, wheat and soybean prices, they think that subsidies are more political pork. For anyone raising livestock or poultry, rising feedstock prices have lowered rather than raised their returns.
One notes that John Stossel's recent report looked only at Nebraska, one of the prime corn producing states. The flip side of the coin, the impact of high feedstock prices was not even considered.
Labels like "big ag", and "factory farm" serve only to distort the discussion. As the linked analysis indicates, only 2% of large farms are non-family owned operations.
This is an excellent report. Unfortunately, most people will not even read it, let alone try to understand the findings.
John Thackers comment is correct: we won't be able to use small farms as a shill for the subsidies large farms get. But if they die out we also won;t get all the OTHER THINGS small farms provide, that we mostly don't pay for.
QT is also correct, althought I only touched on it indirectly. Small farms grow different crops than the "big 3". Small farms frequently participate in nIche markets.
Still, thee is a lot that could be done to help small farms that don't amount to subsidies: they only amount to not letting small farms subsidise US, which is mostly the current case.
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"off-farm income typically accounts for all but a negligible amount of farm household income."
This makes it sound as if the farm is not producing anything, but that may not be the case. It is only that the farm does not produce PROFIT that can be used as household income.
The farm itself can break even and still result in a huge benefit to the local community because of the flow of farm expenditures - even if they don;t result in profit.
RH
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