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Monday, August 23, 2010

Trends Facing Small Commercial Farms



 

As we near the month of September, that becomes a significant symbol for the small commercial farm in US agriculture. It produces 22% of US farm output, but because of financial pressures and such a large number of them are managed by aging operators, the sun soon will be setting on many of them. Many are profitable, but many are not, and the days are growing shorter for that segment of farming.

Small commercial farms are those which have gross cash income between ten thousand and a quarter million dollars. Many of those are managed by families living comfortably. Others are barely able to survive. And others still require substantial levels of off farm income to meet production expenses and land payments. USDA economists recently looked at small commercial farms of today, and compared them to similar size operations in 1991. Their analysis found that both years had a similar number of farms in the US at just over two million. In both cases non-commercial farms, which had less than $10,000 in income, and were retirement and lifestyle farms, generated about 1% of the total value of farm production. On the opposite end, the very large farms, which had income between $500,000 and one million dollars, were 3% of farms in 1991 and only 5% of farms in 2007. Small commercial farms, which made up half of all farms in 1991, represented one-third of all farms today. However their total share of farm production was 40% in 1991 and makes up only 20% today.

Part of the shift to larger farms is attributed to technology. Farms which can afford larger and faster equipment, GPS systems, higher tech seed, and other advanced systems will allow operators to manage more acres effectively. Those farms must have the operating profit to afford those technologies, and farms which do not have the ability to purchase that technology will not grow as fast. Farms with a negative operating profit made up 60% of small commercial farms in both 1991 and 2007. Profitability, which is not a priority for the small non-commercial farm, is a priority for the very large farm and gives it a competitive advantage over the small commercial farm.

Small commercial farms have also declined in number because of the advancing age of the operator. In 1991 those small commercial farms were more likely to have operators over 65 years of age than the large commercial farms. As they grew older many left farming and their farms merged with other farms, instead of being taken over by younger farmers. If a farm with gross cash income under $100,000 had an operator over 65 years of age, it was part of a group of just over a quarter of all farms in 1991, but was part of a group of just over one third of all farms in 2007.

For small commercial farms, one of the critical elements of survival is off farm income. Over half of those farms have either the operator or a spouse working off the farm. And for operators over 65, the use of Social Security money or pensions becomes important to farm survival. Those farms which depend on outside income produce a mix of commodities which can be produced by someone without a 100% time commitment to the farm, such as cash grains and beef. But a small commercial farm that has a dairy operation or high value crops requires full time labor, and makes up only 12% of small commercial farms but 44% of very large farms.

USDA economists believe the trend will continue for small commercial farms to have a lesser role in agriculture. In their report, they say, “Because of the higher average returns realized by large and very large farms, competitive forces will likely continue to reduce the number of small commercial farms and shift production to larger farms. Natural life-cycle processes will reduce the role of small commercial farms over time since so many of their operators are currently at least 65 years old.”

However, the small commercial farm will not entirely fade away because many have strong operating profit margins and can resist competition. Even those with a negative operating profit margin may have positive net farm income and can survive because they are not providing a return to management and labor. And others will remain active because of the strength of outside income.

Summary:
Small commercial farms, which comprise a large number of family farms with gross revenue under a quarter million dollars, are not only declining in number but declining in the amount they contribute to US farm production. Many of them are managed by operators over 65 years of age, and the number of those farms is increasing, as well as the age of the operators. The small commercial farm may be less likely to afford technology that will help it compete and survive because of the greater the chance its profitability is smaller.

Posted by Stu Ellis on 08/23 at 01:46 AM | Permalink

Comments

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Posted by: sam lubega at August 7, 2013 9:09AM

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