0706 PD: Structure and finances of U.S. farms

Robert A. Hoppe and David E. Banker Published on 07 August 2006

Editor’s Note: The following is a summary of the 2005 Family Farm Report. The full report can be found at

Farming in the United States is very diverse, ranging from very small retirement and residential farms to enterprises with annual sales in the millions of dollars. Farms are operated by individuals on a part-time basis, by multiple generations of a family and by managers of nonfamily corporations. Some specialize in a single product, while others produce a wide variety of products.

But despite their diversity of scale, business structure and production mix, most U.S. farms are family farms. The characteristics of family farms and the farmers who operate them have implications for the economic well-being of farm households and for farm policy.

What is the issue?
Agricultural policymakers require information on how U.S. farming is organized. The Economic Research Service (ERS) produces a periodic report with that information. The 2005 Family Farm Report is the most recent in this series, providing agricultural policymakers with an accurate, detailed and unbiased source of information on how farming in the United States is organized, including the relationship of farm size and type to agricultural production, financial performance, sources of farm household income, the extent of off-farm work and use of production contracts.

What did the study find?
Most U.S. farms (98 percent in 2003) are family farms, defined as operations organized as proprietorships, partnerships or family corporations that do not have hired mangers.

Larger family farms have more operators
Because farms are generally family businesses, family members other than the primary operators often serve as secondary operators. About two-thirds of the additional operators are the spouses of the primary operators. The number of operators per farm also tends to increase with size, because today’s commercial farms often require more management and labor than an individual can provide.

The number of operators per farm reaches 1.9, on average, for very large family farms. About one-third of the very large multiple-operator farms have operators spanning more than one generation.

Small family farmsaccount for most U.S. farms and hold most farm assets
Small family farms accounted for 91 percent of the farms in the United States in 2003. They also held about 71 percent of all farm assets, including 70 percent of the land owned by farms. As custodians of the bulk of farm assets, including land, small farms have a large role in natural resource and environmental policy.

Very large family farmsand nonfamily farms produce a growing share of agricultural output
Large and very large family farms, plus nonfamily farms, made up 9 percent of U.S. farms in 2003, but accounted for 73 percent of the value of production. Production has shifted sharply to very large farms and nonfamily farms since the late 1980s, mainly from small farms with sales between $10,000 and $249,999. Shifts in production away from small farms in that sales class are likely to continue, given their negative operating profit margin (on average) and the large and growing share of their operators who are at least 65 years old.

Nevertheless, small farms currently make significant contributions to the production of specific commodities, including hay, tobacco, cash grains and soybeans, dairy products and beef cattle. Most production by small farms is concentrated among low- and medium-sales farms.

Large-scale farms are more likely than small farms to use contracts
Less than 10 percent of limited-resource, retirement, residential or lifestyle and low-sales farms use production or marketing contracts. Twenty-eight percent of medium-sales farms have contracts, but this is much less than the share of large and very large farms that have contracts, 45 percent and 63 percent, respectively. Production under contract is concentrated among very large family farms, which account for 59 percent of the total production under marketing or production contracts.

Contracting has grown at a slow and steady rate over the years, but change is more rapid for some commodities. The share of total agricultural production under contract grew by only five percentage points (from 34 percent to 39 percent) between 1994 to 1995 and 2003.

Payments from conservation and commodity-related programs go to different types of farms
There are two main types of government payments: those from commodity-related programs and those from conservation programs. The distribution of commodity program payments is roughly proportional to the production of program commodities. As a result, medium-sales farms and large-scale farms received about three-quarters of commodity-related government payments in 2003.

In contrast, the Conservation Reserve and Wetlands Reserve Programs target environmentally sensitive land rather than commodity production. Retirement, residential or lifestyle and low-sales small farms received 64 percent of conservation program payments in 2003.

Small-farm households rely on off-farm income
Average operating profit margins and average rates of return on assets and equity are negative for small farms but positive for large, very large and nonfamily farms. So, how do so many small farms continue to exist? Small-farm households typically receive substantial off-farm income and do not rely primarily on the farms for their livelihood. Most off-farm income is from earned sources, either wage-and-salary jobs or self-employment.

Even households operating large and very large farms also receive earned off-farm income of about $30,000 on average. For households receiving substantial off-farm income, changes in tax laws and the health of the nonfarm economy are probably more important than payments from farm programs.

Combining farm and off-farm income, the median farm household income in 2003 ($47,600) was 10 percent greater than the median for all U.S. households ($43,300). Only operators of limited-resource and retirement farms had a median income below the U.S. level. PD

References omitted due to space but are available upon request.

—From USDA Structure and Finances of U.S. Farms 2005 Family Farms Report

Robert A. Hoppe and David E. Banker, Resource and Rural Economics Division, Economic Research Service, U.S. Department of Agriculture

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