The Evolution of Structural Change in the U.S.

Farm Sector

James M. MacDonald*
Robert Hoppe*
David Banker*

May, 2004

*U.S. Department of Agriculture, Economic Research Service. Paper prepared for the

International Agricultural Trade Research Consortium (IATRC) conference, Philadelphia, June

6, 2004. We thank Mary Ahearn, David Harrington, Jeffrey Hopkins, William McBride, and

James Johnson for comments on earlier drafts. The views expressed herein are not necessarily

those of the U.S. Department of Agriculture.

Introduction

Changes in U.S. farm structure can have potentially wide-ranging impacts on the

distribution of benefits from government programs and on the sector’s responses to demand and

supply shocks and to policy initiatives. While several major, long-term, and familiar trends have

characterized structural change in farming since the 1930’s, the last two decades have witnessed

an important evolution in the nature of such change. We detail recent changes in farm structure

in this paper, explain what’s new, and tie the shifts to farm organization, commodity choices, and

business practices.

Gardner (2002) identified several elements in a long term structural change that began in

agriculture in the mid-1930’s: a) sharp increases in farm productivity; b) declines in farm

numbers and increases in average farm sizes; c) increases in farm household incomes to match

those in the non-farm economy; and d) an expanding web of interactions between farm

households and the surrounding non-farm community. Those interactions took the form of

expanded off-farm work by farm households, as well as expanded materials purchases in place of

on-farm input production, which led to greater on-farm specialization.

We emphasize a continuing evolution of the forces identified by Gardner. First, with

regard to farm structure, while the decline in farm numbers and the increase in average farm

sizes slowed after 1978, production is consolidating rapidly on larger farms. That consolidation

is quite widespread across commodities and has occurred at surprising speed. Second, with

regard to interactions among farms and the non-farm community, we emphasize the growth of

contract production and the expansion of other means to acquire inputs and to spread the risks of

fixed investments across a variety of farm and non-farm institutions. Contracts represent one way

to obtain greater production of more differentiated farm and food products, based on attributes

2
tied to intrinsic product traits, production processes, or transaction commitments. Expanded

contract use, along with various leasing arrangements, alliances, and service purchases to acquire

inputs, also make it easier for farm operators to adjust farm sizes, and are thus linked to changes

in farm structure.

We organize our analysis around changes in the farm size distribution, based on an

economic measure of size, farm sales. We compare a simple classification across three years—

1989, 1995, and 2002—with sales expressed in 2002 dollars using the Producer Price Index for

farm products (in fact, farm prices changed very little during the period). Family farms are

assigned to one of five size classes, with non-family farms are assigned to one separate class.1

Farm size is closely associated with the use of a variety of business practices, such as

contracting, equipment leasing, land rental, and the use of hired labor and custom services, and

we assess those elements of structural change through their connection to farm size distributions.

Most of our data are drawn from USDA surveys. The Agricultural Resource and

Management Survey (ARMS) provides data for 2002, while its predecessor, the Farm Costs and

Returns Survey (FCRS) provides data for 1989 and 1995. ARMS and FCRS are large-scale

annual farm surveys that provide considerable detail on farm enterprise production, costs, and

business practices and farm household characteristics. We begin in 1989 because sales data in

the 1989 FCRS and the 2002 ARMS are defined consistently. 2 We also use Census of

Agriculture data to track several additional dimensions of farm structure.

1
ERS defines family farms as sole proprietorships, partnerships, and family corporations, which in turn are
corporations in which related individuals hold at least half the stock. Nonfamily farms include farms operated by
hired managers, as well as farms organized as cooperatives or as nonfamily corporations, including large publicly
held corporations Most nonfamily farms are small. In 2002, 70 percent of nonfamily farms reported sales of less
than $100,000, while 13.3 percent (about 5,000 farms) reported sales in excess of $500,000.
2
The 1989 FCRS survey does not contain the information needed to form the ERS farm typology, which classifies
farms according to organization, operator characteristics, and sales. Appendix A ties our simple size classification to
the ERS typology in 2002.

3
Recent Changes in Farm Structure

For 40 to 50 years, it was easy to summarize changes in farm structure—a strong long-

term decline in farm numbers which, when set against slow declines in the total amount of land

devoted to farming, implied substantial long term increases in average (mean) farm size. The

long-term trends are displayed in figure 1, a familiar chart that relies on data from successive

agricultural censuses to display trends in farm numbers, mean farm size (in acres), and total U.S.

farmland between 1850 and 2002.3 Farm numbers peaked at 6.8 million farms in 1935; from then

until 1974, they fell sharply at an annual rate of 2.7 percent. Farm numbers continued to decline

until 2002, but at a much reduced rate of 0.6 percent per year, while average farm size stabilized.

But farm structure encompasses more than the number and average size of farms. While

mean farm size in 2002 was 441 acres, few farms were actually anywhere near that size; most

were instead widely dispersed away from it. Structural change since the 1970’s encompasses

large and systematic shifts in the size distribution of farms around a slowly changing mean. In

table 1, we describe more recent structural change in farming, covering the period from 1989

through 2002, using sales instead of acreage as the measure of size.4

The table shows some striking shifts, in the context of little change in the total number of

farms between 1989 and 2002. First, the distribution of farm sizes widened, in the sense that

there were more very small farms (less than $10,000 in sales) and more very large farms (more

than $500,000) at the end of the period than at the beginning. In particular, the absolute number

of very large farms grew sharply, from 32,000 farms to 64,000. Second, the locus of production

3
The trends show a gap in 1974-78, reflecting changes in census methodology that shifted the lines without
changing the trends.
4
Acreage measures are useful for showing long term shifts, because they are unaffected by inflation. But they suffer
from composition problems because some acres are more productive than others and because land is just one input
to production. Sales measures capture the economic value of output; comparisons across time require proper price
indexes, an issue that is less crucial in our analysis because of the stability of farm prices in the period.

4
shifted emphatically. The largest size class of family farms accounted for 44 percent of the value

of production in 2002, up from 29 percent just thirteen years earlier. That shift was almost

precisely mirrored by the decline in the share of production held by farms with between $10,000

and $250,000 in sales, from 44 percent of production in 1989 to 29 percent in 2002. Note that

operators in the smaller groups are getting decidedly older—the proportion that were 65 or older

rose sharply in those size classes, while showing little change elsewhere (table 1, third panel)—a

development that suggests that we’ll see continued shifts of production away from smaller

family farms as those operators retire.

Our surveys ask farmers to list their major occupation, as either “farm or ranch work”,

“retired”, or “other”. It may seem surprising to find that a farm operator whose off-farm earnings

exceeded his farm sales would describe farming as his major occupation. Nevertheless about

one-sixth of farm operators whose sales were less than $10,000 in 2002 reported farm work as

their major occupation (table 1, fourth panel). Since occupation is self-selected in these surveys,

an operator may consider himself to be a farmer even though most or all of his income derives

from off-farm sources.

What’s striking, however, is the sharp decline in farmer identification among small-farm

operators: among those with sales below $10,000, the proportion choosing “farm or ranch work”

fell from 30 to 16 percent between 1989 and 2002, and from 74 to 50 percent among those in the

next smallest size class ($10,000-$99,999). The decline is sharp enough to indicate that there

may be some important broad shifts in small farm operators’ self perception, and a coincident

greater identification with off-farm activities.

Discussions of structural change in farming often focus on livestock operations, and

particularly on industrialization in poultry, hog, and dairy production. But the shift of production

5
toward larger farms is occurring across most commodity categories. In table 2, we report greater

detail on shifts in the distribution of farm production in 1989 and 2002. Specifically, for each

commodity reported in the table, we report the share of commodity production value held by

each of four size classes of farms (to save space, we omitted non-family farms and family farms

with less than $10,000 in sales). Adjoining rows compare 1989 and 2002 data for a commodity.

We can clearly see the expected dramatic shifts in several livestock commodities, such as

the rapid transformation of the hog industry, where the two smaller size classes’ share of

production fell from 56 percent to 11 percent in thirteen years. Dairy production also shows the

major changes we would expect, as farms in the largest size class expanded their share of dairy

production from one quarter to over a half. Poultry showed a continuation of a long shift of

production toward farms in the largest size class.

But crop production also shows a decided, although more gradual, shift to larger farms,

with increases of 8 to 15 percentage points between 1989 and 2002 in the largest farms’ share.

Cotton and tobacco showed particularly striking shifts, in percentage terms, toward the largest

farms. By 2002, smaller family farms (those with less than $250,000 in production) retained at

least 40 percent of output in only three broad commodity categories—cattle, cash grains and

soybeans, and tobacco—and the small farm share of cash grains and soybeans had fallen sharply.

The Unexpected Pace of Consolidation

Twenty years ago, Stanton (1984) asserted that “One of the more certain trends in a

generally uncertain world is that the proportion of output produced on large, family-operated

farms will continue to increase in the United States.” Informed economists expected farm

consolidation to continue after 1980, and several teams analyzed changes in farm structure in the

6
and provided forecasts to 2000. We compare those projections to the actual size distribution of

farms in 2000, in table 3.

We make comparisons not to test analysts’ prediction skills, but to frame a reasonable

answer to the question implied in the title of this section—what’s unexpected about recent shifts

in farm structure? Projections made by well-informed and technically sophisticated analysts

provide a useful basis for considering the issue, particularly since the teams showed considerable

consensus in one dimension: they all predicted continued shifts of production to large farms, but

each actually underestimated the magnitude of the subsequent shifts.

We consider two projections in table 3. The top panel uses data from Lin, Coffman and

Penn (1980), or LCP, who relied on data through the 1974 Census of Agriculture to predict farm

size distributions in 2000. We use acres as the measure of size. In the second panel, we use

projections of the farm sales distribution prepared by the Congressional Office of Technology

Assessment (1986), or OTA.5

Each study forecast a growing number of farms in the largest size class, but each

projection fell below the actual 2000 figure, by 20 percent for the OTA sales-based measure and

by 12 percent for the LCP land-based measure. Each study also projected nearly a halving of

farm numbers in the smallest size category, a substantial overstatement of the actual decline. In

short, the shift in the farm size distribution is neither new nor unexpected, but the magnitude of

the shift is—very large farms are substantially more important today than informed analysts

expected them to be, and very small operations are far more prevalent than analysts predicted.

5
LCP also included a projection using farm sales, but comparisons would require a long and complex adjustment for
their inflation assumptions, so we only consider their land-based projections. The OTA projected forward using
1982 dollars; since the farm prices received index in 2000 was only 0.5% below the 1982 index, we simply use
nominal 1982 and 2000 dollars in the table.

7
 The strong long term trend decline in very small farms ended in the 1970’s. Edwards,

Smith, and Peterson (1985) recognized that turnaround and incorporated into their forecast of

total farms (2.23 million), which was much closer to the mark. But they also missed the extent of

the shift to large farms, with predictions that were 12-15,000 farms too low in the 2,000 acre and

above category, and 4-7,000 too low in the 1,000-1,999 acre category.

The continued survival of very small farms does not appear to be based on their financial

performance. Figure 2 reports mean operating profit margins by sales class in 1989 and 2002.

Small farms consistently lose money; margins were negative, and quite large, across size classes

below $50,000 in 1989. By 2002, all classes below $250,000 in sales reported substantial losses.

In each year, larger classes report positive margins that grow with size. Another element in the

figure stands out: margins fell in each size class between 1989 and 2002. The decline may reflect

the choice of endpoints—2002 was a poor year, financially. In contrast, the mean operating

profit margin for the largest size class of family farms was 16.4 percent in 2001, well above the

2002 figure. Figure 2 provides continuing support for Stanton’s (1984) assertion: there are strong

economic pressures for a continuing shift of production to larger family farms in the near future.

But the figure also points up a mystery—very small farms continue to operate despite very poor

financial performance.

Economists have been interested in changes in farm structure for a long time. Prior

research identified strong continuing pressures for consolidation into larger family farms, based

on profit incentives arising from technological change that eroded managerial diseconomies of

size as well as enhanced production and marketing economies. More recent innovations, many

based on advances in biological or information technology, may have provided even stronger

advantages to size, thus accelerating shifts of production to larger family farms. At the same

8
time, an unexpectedly large number of households have continued to operate very small farms,

often on a part-time basis, while making use of expanded off-farm earnings opportunities.

From Farm Structure to the Business Organization of Farms

Large farms are not simply expanded versions of small farms; rather, large and small

farms produce distinctly different product mixes. Two commodities—cattle and hay—account

for more than two-thirds of the total value of production among the smallest farms, those with

less than $10,000 in sales. That information is contained in table 4, which reports the five most

important commodities (ordered by value of production) within each size class, together with the

commodity’s share of all production in the class. At the bottom row of the table, non-family

farms are similarly specialized in the aggregate, with cattle (feedlots) and high-value crops

accounting for over 70 percent of production at those farms. Each of those groups are highly

specialized, and the degree of specialization has increased over time.

The largest family farms tend to specialize in livestock production (cattle feedlots, large

dairy operations, and confined poultry and hog feeding enterprises), and in high value crops.

Mid-sized family farms, as a class, tend to be much more diversified than very large or very

small farms. Cash grains and soybeans are important revenue sources for those operations, and

have grown steadily more important over time, as livestock production (particularly dairy,

poultry, and hogs) moves to the largest farms.

Farm size and commodity mix have strong impacts on how farm operators organize their

enterprises, and changes in farm structure are hence linked to important changes in farm business

practices. Consider table 5, in which we provide details on methods used to market farm

products and acquire farm inputs.

9
Production and Marketing Contracts

The top panel summarizes the use of contracts to govern the production and transfer of

farm products. Farmers can agree to a marketing contract before harvest to establish a marketing

outlet and a price or pricing formula (tied to product qualities and quantity); they can also agree

to a production contract which establishes production guidelines, input provision, fees and

investments prior to commencing production. Contracting is closely tied to farm size, and

governed 50 percent of production among the largest farms (table 5). As production has

consolidated among large farms, contracting has become more prevalent. Marketing and

production contracts governed 37 percent of the aggregate value of production in 2002, up from

29 percent in 1991 FCRS data and 12 percent in 1969 Census of Agriculture data.

Contract production has been growing for a long time, and over that time has been

closely tied to farm size. But the seemingly steady long run aggregate growth alluded to above

hides the quite sudden and dramatic recent expansion in several commodities. Contracts

introduced in 1999 covered virtually all tobacco production in 2002, while contract coverage in

hog production expanded from one third of production in 1996 to two thirds in 2001. Noticeable

sharp recent increases have also occurred in fed cattle, cotton, and rice. Contracts can be used to

ensure the delivery of products with particular attributes, such as inherent product traits (such as

high oil corn), production methods (organics), or transaction characteristics (committed volumes,

delivery times, and weight ranges for hogs). Contracts may aid in better matching farm

production to consumer demands, but they are also controversial because they may hasten farm

consolidation and because they can be structured to exploit processor market power in

concentrated markets.

10
 In recent ERS research with ARMS data, Key (2004) finds that, controlling for operator

net worth, contract operations take on more debt per dollar of net worth than independent

producers of the same commodity and that they then grow larger. He argues that contracts can

lower the costs of debt capital by reducing the risks that lenders face from asymmetric

information. His findings suggest that the association between contracting and farm size might

reflect a causal link running from contracting to farm size, instead of the reverse.

Input Acquisition

Farm operators make a variety of choices when acquiring inputs. They can provide their

own labor, or hire workers; they can purchase land and equipment, or they can lease those inputs;

they can perform all on-farm operations, or they can hire specialized service firms to provide

custom work; and they can produce agricultural inputs like feed and young livestock, or acquire

them through purchase or transfer from contractors. Actual operator choices are closely linked to

farm size and product mix. We detail the links to farm size in table 5.

The largest farms stand out in two dimensions: they are far more likely to lease

machinery and equipment than smaller farms, and far more likely to use hired labor. Non-

operator hours (primarily hired labor) account for 75 percent of all labor hours among the largest

farms, in the third panel of table 5, a share that varies across the wide range of farm sizes in that

class.6 We used a regression analysis of 2002 ARMS data to explore the issue in more detail. Not

surprisingly, operator hours offset hired hours. But beyond a certain commitment of operator

hours, we found that 1,000 more hired labor hours are added, on average, for every additional

$78,000 in gross sales. Given typical ranges for operator labor hours, the model would predict

11
that a farm with $500,000 in gross sales would employ two hired workers at 2,000 hours a

worker, and that a farm with $1 million in gross sales would employ five. Given sales, high value

crop farms would use decidedly more hired labor hours, and hog and poultry farms less.

Farms with more than $100,000 in sales are generally quite likely to rent land and to

acquire custom services—over 80 percent of farms with sales between $100,000 and $500,000

rent at least some of their land, and 70 percent of the largest farms do so. Differences in

commodity mix probably account for the differences between the largest farms and the next

smaller classes. Farms with field crops are likely rent land and use custom services such as

harvesting and field preparation, and many of the largest farms specialize in livestock.

Because of opportunities to rent land (or lease it out), lease equipment, hire labor, and

obtain custom services, farm operators can change the size of their enterprises quite quickly. As

a result, there’s a good deal of mobility within farm size distributions. Because of the entry of

new farm businesses, the exit of old, and the expansion and shrinkage of continuing businesses,

only about half (48.6 percent) of the 176,000 farm businesses operating at least 1,000 acres in

1997 were also operating at least 1,000 acres in 1992.7 Moreover, a considerable number of

farms experience dramatic acreage shifts: indeed, more than 8,600 farms that operated fewer

than 500 acres in 1992 grew to operate over 1,000 acres in 1997, and 1,333 of those farms

operated less than 50 acres in 1992. Conversely, more than 8,700 farms shrank from over 1,000

acres to less than 500, and 1,341 of those operated less than 50 acres in 1997. While most farm

6
The ARMS survey does not directly ask for hired labor hours. We estimated hired hours in the following way: we
obtained annual cash wages paid to other (non-household) hired labor from the ARMS survey, and then divided that
figure by state-level average farm labor wages.
7
We used Census of Agriculture longitudinal data for these comparisons. We find greater mobility than that found
by Edwards, Smith, and Peterson (1985) in their analysis of 1974-78 transitions, but the intercensal time period was
also one year longer.

12
size adjustments were considerably less dramatic, the evidence indicates widespread fluidity of

movement within farm size distributions.

Farm growth decisions may be closely linked to the goals and age structure of operator

households. The bottom panel of table 5 shows that large farms often have multiple operators.

Past surveys constrained respondents to list a single primary operator, but the 2002 ARMS

elicited information for multiple operators, which could include spouses, multiple generations of

a family, or unrelated business partners. More than half of the largest farms reported having

more than a single operator, and one sixth reported three or more operators. With multiple

operators who wish to continue in the farm business, farms may have strong incentives to grow;

similarly, farms with aging single operators and no family succession planned can shrink or exit

quickly. Moreover, off-farm employment opportunities (detailed below) may allow multi-

generation operator families to more easily adjust their provision of operator hours to farm work

as the farm business expands or contracts.

Government Payments

Farm product mixes and volumes drive the patterns of government payments to farm

operators (table 6). Among farms with less than $10,000 in sales, government payments amount

to nearly 10 percent of gross cash farm income (GCFI); payments account for declining shares of

GCFI across farms in other sales classes, reaching 3.5 percent in the largest sales class.

The reasons for this pattern follow from the nature of government programs and farm

participation in them. Only a few of the smallest farms receive any government commodity

payments (14 percent of farms in table 5), which largely go to field crop producers; but they

receive a large share of conservation payments—27 percent of Conservation Reserve Program

13
(CRP) and Wetlands Reserve Program (WRP) payments go to the smallest farms, and nearly 48

percent go to farms with between $10,000 and $100,000 in sales. Many of those farms have

retired their land in the programs, and hence report no commodity production and no cash farm

income. As a result, conservation programs likely boost reported small farm numbers, since

participants continue to be counted as farms, yet produce less than $10,000 in sales.

In contrast, many of the largest farms (more than $500,000 in sales) produce

commodities that do not receive commodity support, and as a result a smaller share of those

farms enroll in commodity programs, compared to farms in the middle size classes, and they

receive a share of government payments that is substantially smaller than their share of

production.8

How Farm Households Earn Their Incomes

Although small farms handle a shrinking share of production, and although they

generally report negative margins, small farm operators are not, in general, poor. Figure 3

summarizes farm operators’ household incomes among farms in different size classes. Mean

farm household incomes match or exceed the mean for the U.S. population in every size class.

Medians fall well below corresponding means, because incomes tend to be skewed—a few very

high incomes raise the mean, but don’t affect the median. When we consider medians, that

among farmers in the second smallest size class ($10,000-$100,000) is slightly below the all-

household median, but medians in all other size classes are well above the U.S. median. As a

group, farm household incomes compare favorably to U.S. average household incomes.

8
Because of the shift of crop production to larger farms the share of government commodity payments received by
large farms has been growing. In 1989, farms with at least $500,000 in sales received 11.7% of commodity
payments; by 2002, that share had risen to 27.4%.

14
 Household mean incomes are decomposed, in table 7, into mean farm-related and off-

farm incomes for each size class, and off-farm incomes are further decomposed into earned and

unearned incomes. Mean off-farm earned income combines positive earnings by households who

work off-farm with zero earnings by those who don’t, and hence the figures in table 7 will

understate typical incomes among those who work off-farm. If we restrict our attention to

households who work off-farm, mean off-farm earned income rises considerably, and ranges

from $69,000 for households in the smallest size class of farms, to $60,000 for households in the

next two classes, $45,000 in the second largest class, and $52,000 in the largest class.

Small farm households derive almost all of their income from off-farm work and from

unearned income from pensions and financial investments (table 7). Almost 80 percent of the

smallest farms report negative incomes from farming, but those losses are generally offset by

substantial off-farm incomes that keep most at or above national averages.9 Recall, from table 1,

that only one in six operators in the smallest size class reports farm work as their major

occupation, and that this class accounts for more than half of all farms. Gardner’s expanding web

of interactions with the non-farm community—in this case, in the form of off-farm earnings

opportunities combined with farm residences—allow many of these households to maintain a

limited farm operation as a lifestyle.

Many other households run small but still significant farming operations (with annual

sales up to $250,000), and they frequently combine a profitable farm business with off-farm

employment to generate household incomes that match or exceed national averages. In those

cases, expanding off-farm employment options provide an opportunity cost to continued farm

9
Note that approximately 24 percent of operators in the smallest size class report no off-farm earned income (table
7). Approximately 73 percent of those operators are retired, and many of them have retired their land into CRP and
WRP programs, receiving income from those sources as well as pensions or financial investments.

15
work, but also may allow for the operation of networks of part-time or small but profitable while

limiting the pace of consolidation.

Off-farm employment is less important for households that operate the largest farms, as

nearly half (46 percent) of those households do not work off the farm, and they account for a

large and growing share of farm production. But off-farm earnings options still influence those

households’ choices, because they signal the opportunity costs of on-farm work. Moreover, they

provide small and large farm households with the flexibility to more finely tailor operator

household farm labor to the needs of the farm business.

Farm Structure and Farm Adjustment

Ongoing trends, as well as demographic and profit data, suggest that we will see a

continued shift of farm production toward large, family operated farms. Farms can change size

and production rather quickly in part because contemporary institutions create resource mobility

at the farm level. Cropland can be rented in, to grow, or out, to shrink. Machinery and equipment

can be leased, or custom services can be hired, thus limiting the long-term exposure to the risks

of a large investment in physical capital. Off-farm employment opportunities allow farm

households to adjust their hours committed to farm work, and provide a cushion against

fluctuations in farm income. Production contracts can reduce short-term credit needs through the

provision of contractor-supplied inputs, and can ease the acquisition of long-term credit through

the contractor’s volume commitments.

Eased resource mobility at the level of individual farms suggests that farm structure can

adjust more rapidly to changes in technology, demand, and policy. That opens the possibility that

policies aimed at conservation, food safety, and commodity support can affect farm structure, a

16
possibility that finds support in the dramatic structural changes in hog production over the last

decade and the more gradual adjustments in dairy, poultry, and fed cattle production..

However, eased resource mobility also provides more separation between farm asset

ownership and farm operation. While government farm payments are directed in the first

instance to farm operators, competition in markets for inputs means that payments may affect

input prices and hence ultimately benefit non-operator owners of land and other inputs.

Moreover, as production shifts to larger farms, policies designed to provide assistance to all

farms based on production will increasingly benefit larger farm operators, whose incomes

substantially exceed U.S. averages.

17
References

Edwards, Clark, Matthew G. Smith, and R. Neal Peterson. “The Changing Distribution of Farms
by Size: A Markov Analysis.” Agricultural Economics Research 37 (Fall, 1985): 1-16.

Gardner, Bruce L. American Agriculture in the Twentieth Century: How It Flourished and What
It Cost (Cambridge, MA: Harvard University Press, 2002).

Key, N. “Agricultural Contracting and the Scale of Production”. Unpublished, Economic

Research Service, U.S. Department of Agriculture, 2003.

Lin, William, George Coffman, and J.B. Penn. U.S. Farm Numbers, Sizes, and Related
Structural Dimensions: Projections to Year 2000. U.S. Department of Agriculture. Economic
Research Service. Technical Bulletin No. 1625. July 1980.

Stanton, B.F., “Changes in Farm Structure: The United States and New York, 1930-82.” Cornell
Agricultural Economics Staff Paper No. 84-23. September 1984.

U.S. Congress, Office of Technology Assessment. Technology, Public policy, and the Changing
Structure of American Agriculture. OTA-F-285 (Washington, DC: U.S. Government Printing
Office, March 1986).

18
Appendix A: Linking a Sales Class Sorting to the ERS Typology

ERS developed a farm typology to account for differences among farms in farm
ownership, farm size, operator occupation, and owner wealth. Table A-1 below links the
typology to the sales class grouping that we’ve used in this paper, by showing how farm counts
fall into different typology groups and sales classes. The typology first sorts farms into family
and non-family farms. Family farms with $250,000 or more in sales are then assigned to large
(less than $500,000) and very large typology classes. Among family farms with less than
$250,000 in sales, the typology then sorts into 5 groups. Limited resource farms have sales below
$100,000, annual income below $20,000, and assets below $150,000. Operators who report that
they are retired are grouped in the “retirement” category, while those who report “farmer” as
their principal occupation are grouped into one of two groups according to sales ($100,000 or
more; and less than that). Finally, operators who do not report farming or retired as their
principal occupation are grouped into the Residential/Lifestyle group.
Non-family farms are assigned to a single group in the typology and in the sales class
groupings. Table A-1 does show the sales distribution among non-family farms, and 70 percent
report sales of less than $100,000. Also, note in the table that very small farms (less than $10,000
in sales), which account for more than half of all family farms, fall in substantial numbers into
four different typology groups; similarly, farms in the next size class ($10,000-$99,999) fall
broadly into four typology groups.

Table A-1: Number of Farms, by Sales Class and ERS Typology

Farms, by Sales Class ($000)

ERS Typology Grouping All Under 10 10-99 100-249 250-499 500+
Limited Resources 106,048 86,602 19,455 - - -
Retirement 395,635 281,069 107,235 7,331 - -
Residential/lifestyle 851,190 648,875 186,314 16,001 - -
Farm occupation/ lower-sales 450,891 171,575 279,316 - - -
Farm occupation/ higher-sales 160,433 - - 160,433 - -
Large 86,300 - - - 86,300 -
Very Large 64,328 - - - - 64,328
All Family Farms 2,114,824 1,188,121 592,310 183,764 86,300 64,328

Non Family (any size) 37,588 a 26,424 3,782 2,369 5,013

All Farms 2,152,412 a 618,734 187,546 88,669 69,341

a: All non-family farms with sales below $100,000 are grouped in the $10,000-$99,999 category.

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Table 1: Selected Structural Characteristics of U.S. Farms, 1989-2002

Item, by Sales Class of Farm 1989 1995 2002

Number of farms 2,148,740 2,068,000 2,152,412

Distribution of farms -Percent-

Less than $10,000 51.2 50.6 55.2
$10,000-$99,999 33.8 33.0 27.5
$100,000-$249,999 8.9 9.8 8.5
$250,000-$499,999 3.4 3.1 4.0
$500,000 or more 1.5 1.9 3.0

Distribution of value of production -Percent-

Less than $10,000 2.4 2.2 1.9
$10,000-$99,999 21.3 17.0 11.9
$100,000-$249,999 22.2 20.7 17.0
$250,000-$499,999 19.0 14.6 16.8
$500,000 or more 28.9 31.0 43.9

Operator 65 years old or more -Percent-

All 24.4 25.1 27.4
Less than $10,000 29.1 29.2 29.9
$10,000-$99,999 23.7 26.6 30.2
$100,000-$249,999 9.5 8.5 16.9

Operator reports a farm occupation -Percent-

All 54.4 44.9 38.0
Less than $10,000 29.5 19.3 16.3
$10,000-$99,999 74.0 60.8 49.7
$100,000-$249,999 95.3 92.0 87.3

Note: To conserve space, we omitted non-family farms from each panel (their shares can be deduced in
the first two, since shares add to 100), and the two largest family farm classes from the last two panels,
since there was little change in their estimates over time.
Source: Data derived from USDA 2002 Agricultural Resource and Management Survey (ARMS), and
1989 and 1995 Farm Costs and Returns Survey (FCRS).

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Table 2: Production Shifted to Larger Farms Between 1989 and 2002

Commodity and Year Farm Size in Sales ($000)

10-99 100-249 250-499 500+

Share of Value of Production (%)

Cash Grain, Soybeans
1989 27.9 35.7 22.0 10.9
2002 17.2 28.7 26.6 24.4
Cotton
1989 6.3 18.9 25.1 40.7
2002 7.6 8.1 24.5 55.5
Peanuts
1989 28.9 34.7 16.3 17.9
2002 13.5 16.2 24.0 30.5
Sugar Beets & Cane
1989 9.1 10.9 35.5 39.3
2002 4.4 17.6 23.8 48.8
Tobacco
1989 37.1 28.8 12.1 12.2
2002 33.5 27.7 14.4 20.0
Fruits, Veg., Nursery
1989 11.1 10.3 14.2 45.3
2002 6.6 6.6 10.1 57.3
Cattle
1989 25.7 14.6 10.6 36.8
2002 22.2 18.0 15.3 27.2
Hogs
1989 23.7 32.4 24.6 14.0
2002 2.8 7.7 12.0 64.2
Dairy
1989 24.1 32.7 14.7 25.7
2002 6.0 22.0 15.0 54.0
Poultry
1989 2.8 8.5 42.6 40.2
2002 2.0 10.4 13.3 67.7

Note: the table omits two farm classes, family farms with sales below $10,000 and non-family farms.
Source: Data derived from USDA 2002 Agricultural Resource and Management Survey (ARMS), and
1989 Farm Costs and Returns Survey (FCRS).

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Table 3: Projected and Actual Farm Size Distributions, 1974 and 2000

Study and Size 1974 1982 2000 2000

Measure (actual) (actual) (projected) (actual)

LCP (Acres) -Number of Farms (000)-

1-219 2,007 1,129 1,454
220-999 713 447 521
1,000-1,999 93 102 110
2,000 and over 62 71 81
All farms 2,875 1,749 2,166

OTA (Sales)
Less than $100,000 1,937 1,000 1,819
$100,000-$499,999 275 200 285
$500,000 or more 28 50 62
All farms 2,239 1,250 2,166

Sources: LCP is Lin, Coffman, and Penn (1980) for 1974 and 2000 (projected) acreage; OTA is U.S.
Congress, Office of Technology Assessment (1986) for sales; the 2000 Agricultural Resource
Management Survey (ARMS) underlies estimates of actual 2000 acreage and sales.

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Table 4: What Small and Large Farms Produced in 2002

Size Class (sales) Commodities, ordered by rank in size class

1 2 3 4 5

Less than $10,000 Cattle Hay Other livestock High value crops Soybeans
(46.9) (21.3) (9.3) (7.9) (3.2)
$10,000-$99,999 Cattle Corn High value crops Soybeans Hay
(31.5) (12.3) (11.8) (11.2) (7.1)
$100,000-$249,999 Cattle Corn Dairy Soybeans High value crops
(17.9) (16.0) (14.5) (12.7) (8.1)
$250,000-$499,999 Cattle Corn High value crops Soybeans Dairy
(15.4) (15.1) (12.8) (11.8) (10.0)
$500,000 or more High value crops Poultry Dairy Cattle Hogs
(27.6) (14.6) (13.8) (10.5) (8.6)
Non-family High value crops Cattle Hogs Poultry Dairy
(any size) (46.4) (23.9) (8.6) (7.0) (4.0)

Notes: numbers in parentheses are the percent of total value of production of farms in a size class that is
accounted for by the commodity. “High value crops” include fruits, vegetables, nursery, and greenhouse
crops.
Source: Data derived from USDA 2002 Agricultural Resource and Management Survey (ARMS).

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Table 5: Farm Business Strategies in 2002

Farm Size in Sales ($000)

Under 10 10-99 100-249 250-499 500+
Contracting:
Farms with a contract (%) 1.7 12.8 32.5 43.2 62.8
Production under contract (%) 6.1 13.5 27.8 30.8 49.6

Input acquisition--farms that:

Hire labor (%) 11.4 29.3 48.9 64.6 75.6
Hire custom work (%) 24.7 46.0 63.5 60.3 57.6
Lease equipment (%) 2.6 8.9 19.6 24.6 31.7
Rent land (%) 24.3 53.1 80.1 81.6 69.5

Input shares (%)

Rented land/operated land 20.6 42.1 52.5 59.0 56.1
Non-operator hours/total hours 12.9 16.2 24.4 36.2 75.1

Farms with multiple operators (%)

Two operators 27.8 28.4 34.5 33.3 39.6
Three or more operators 1.5 3.1 5.7 9.9 15.8

Note: the table omits non-family farms.

Source: Data derived from USDA 2002 Agricultural Resource and Management Survey (ARMS).

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Table 6: Government Payments, 2002

Farm Size in Sales ($000)

Under 10 10-99 100-249 250-499 500+

-Percent of Gross Cash Farm Income-

Share of government payments 9.8 9.6 8.2 7.3 3.5

Percent of farms receiving: -Percent of Farms in Sales Class, by Payment Type-

Any government payments 25.3 61.7 79.9 80.1 64.9
Commodity-related payments 13.6 52.3 76.7 76.8 60.6
CRP or WRP payments 9.7 12.4 14.3 18.8 13.5

Distribution of payments -Percent of Payments, by Sales Class-

All government payments 5.3 22.6 24.6 21.0 23.9
Commodity-related payments 1.6 17.7 27.2 23.4 27.4
CRP or WRP payments 27.0 47.5 9.6 9.6 3.8

Note: the table omits non-family farms.

Source: Data derived from USDA 2002 Agricultural Resource and Management Survey (ARMS).

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Table 7: Farm Household Income, 2002

Farm Size in Sales ($000)

Item Under 10 10-99 100-249 250-499 500+

Mean household income -Dollars-

Total 63,102 58,508 64,634 75,439 171,779
Farm related -5,761 -726 15,539 39,829 129,424
Off-farm 68,863 59,234 49,095 35,611 42,355
Off-farm earned 52,575 41,535 38,676 27,679 28,304
Unearned 16,288 17,699 10,419 7,932 14,051

-Percent of Operator Households-

Negative farm-related income 79.8 49.9 31.4 25.5 27.7
No off-farm earned income 23.7 30.7 35.9 38.9 45.5

Source: Data derived from USDA 2002 Agricultural Resource and Management Survey (ARMS).

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