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Monday, August 02, 2010

The Family Farm:  Alive, Profitable, and Dominating Agriculture.



 

Is the family farm alive and well? That depends on who is talking. If the authority is USDA’s Economics Research Service the family farm is doing quite well, thank you. The ERS analysis of family farms, based on the 2007 Ag Census was recently released, and it does not give agriculture’s critics much ammunition when it comes to the dominance of the family farm.

While corporate organizations have succession planning to ensure continuity, it turns out that many family farms have secondary operators in case something happens to the primary operator. For the farms with sales of $250,000 and up, 42% of the medium sales farms, 52% of the large family farms, and 61% of the very large family farms all have a secondary principle operator, including spouses. In fact, spouses are secondary operators on more than 70% of the smaller farms, says the ERS report on Family Farms.

The USDA economists report, “The share of family farms with two or more operators peaks at 55 percent on very large farms, 15 percentage points higher than the share for all U.S. farms.” And they add that 16% of all multiple operator farms are multiple-generation farms with at least 20 years’ difference between the oldest and the youngest operators. One of the issues faced by family farms is the aging of the principle operator, since 28% of farm operators are 65 years and older. From the residential/lifestyle farms all the way to the very large family farms, the mean age is between 52 and 59. For all farms, 5% are operated by someone under 35, 12% are in the 35 to 44 age range, 24% are in the 45 to 54 age range and 31% are in the 55 to 64 year age range. ERS says, “Improved health and advances in farm equipment have also allowed farmers to farm later in life than in previous generations.”


While it is good they are in good health, USDA is concerned about a “mass exit of farmers from agriculture in the near future.” And the concern is about finding younger farmers to take their place and absorb their land and other assets. Do the older farmers own substantial assets? Not always says ERS. Low and medium sales farms with older farmers account for 8% of the farms, 9% of the assets, and only 3% of production. For the older operators on the large scale family farms, older operators account for only 12% of production, but only 2% of farms and 6% of assets. Since many of those are already multi-generational farms, replacement of retiring farmers should not be concerning.


It may be no surprise that the smaller the farm the less the profitability and the larger the farming the greater the chance of profitability. The ERS family farm survey found negative profitability in all sizes of farms, “The variation in net income reflects the wide variation in gross farm income, which ranges from roughly $25,000 for the average retirement and residential/lifestyle farm to $1.3 million for very large family farms, on average.” The operating profit margin was greatest at 25.7% for the very large family farms, 11% for all farms, and a negative 47 to 48% for lifestyle and low sales family operations. Most farms have a debt to asset ratio of no more than 40%, but vulnerable farms, which have a debt to asset ratio of more than 40% are only 3% of all farms. But of that 3%, 71% of them are the residential/rural lifestyle farms. However, their operators are not depending on the farming operation for a livelihood.


If those types of farms are not profitable, how can they continue to exist? The answer lies in the household income and net worth of the operator. ERS says, “In 2007, average off-farm income for small-farm households ranged from just under $50,000 for low- and medium-sales households to $107,700 for households operating residential/lifestyle farms. Most off-farm income—76 percent for all U.S. farm households—is from earned sources, either a wage-and-salary job or self-employment. However, households operating retirement farms receive nearly three-fifths of their off-farm income from unearned sources (such as Social Security, pensions, dividends, interest, and rent), reflecting the advanced age of operators on those farms.”

1) In 2007 average operator household income for all farm households was $88,900, about 32% more than all US households. Median farm operator household income was $54,000, which means they cannot be considered low income.
2) The average net worth that farm operator household recorded ranged from $1.3 million for medium sales farms in 2007 to $2.5 million for very large family farms. Since real estate accounted for 79% of total assets, most of those were not liquid and not available to spend for consumption.

When it comes to government payments, about 75% of medium sales and large scale family farms receive commodity payments, and collectively receive 76% of commodity program benefits. The very large family farms received 45% of commodity payments, roughly proportional to production of commodity crops.

Summary:
Profitability varies widely for family farms, and the primary determinant is their size. Those farms that are rural lifestyle or retirement farms generally are not profitable, but subsidized by household income, and that is the purpose of their agricultural operation. As the size of family farms gets larger, profitability increases, and is greater than the profitability of non-family farms. The age of farm operators and the existence of a successor on the farm are also significant issues for family farms. While 28% of all farmers are over 65 years, an exodus is anticipated in the near future. The larger the farming operation, the more likely a successor is prepared for duty.

Posted by Stu Ellis on 08/02 at 01:05 AM | Permalink

Comments

Stu, I can't help but think those numbers have drastically changed since 2007, when we we right at the brink of the big economic burst. I would be curious to see some figures for today when the economy has hit bottom and just barely starting to make that climb back up. Very good report though.

Posted by: Our Lazy S Ranch at August 2, 2010 2:02PM

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