Million-dollar farms in the new century

05-01-2009 | Home | News

A new report from the Economic Research Service shows that small farms still represent the majority of farming in the US, but the number of million-dollar farms is increasing rapidly.

Small farms (those with annual sales less than $250,000) represent a large majority of US farms (92%), but account for a relatively small share of total farm production (23%). The report from the Economic Research Service (ERS) of the USDA examines the other end of the size spectrum, where a large percentage of farm production occurs, specifically on “million-dollar farms” whose annual sales total $1 million or more. The 35,100 million-dollar farms reported in 2006—2% of all US farms—accounted for 48% of the sales of US agricultural products.

Shift in farm sales distribution
More shifts occurred in the distribution of gross farm sales between the 1982 and 2002 Censuses of Agriculture, with sales measured in constant 2002 dollars. Farms with sales of $1 million or more doubled their share of total US farm sales from 23% in 1982 to 48% in 2002. Some of these million-dollar farms are relatively recent entrants to farming, while others existed as far back as 1978. The shift in production to million-dollar farms is likely to continue. Average operating profit margins increase with sales, reflecting economies of size in farming. As a result, million-dollar farms—and farms growing to that size—have a competitive advantage relative to smaller farms.The shift in production may eventually slow, however, once million-dollar farms’ shares of the commodities most amenable to large-scale production reach their upper limits.

No market power
Million-dollar farms do not have market power. The shift in farm production to million-dollar farms reflects a long-term concentration of farm production on fewer farms that has been underway since the beginning of the 20th century. However, there are still too many million-dollar farms—just over 35,000—for any single farm to dominate agriculture or the production of specific commodities.

Small share in subsidies
Million-dollar farms receive a small share of Government payments. Most Government payments are commodity-related or targeted at current or past production of specific commodities, largely feed and food grains, cotton, and oilseeds. Relatively few million-dollar farms—particularly those with sales of $5 million or more—specialize in crops covered by commodity programs. As a result, million-dollar farms received only 16% of US Government payments in 2006, a small share compared with their 48% share of gross sales, although disproportionately large compared with their 2% share of all farms.

Implications drawn
Three significant implications regarding million-dollar farms can be drawn from the information presented:
1. The shift in production to million-dollar farms is likely to continue. As long as the operating profit margin is roportional to sales class, million-dollar farms will have a competitive advantage. The shift in production may eventually slow, however, once million-dollar farms’ shares of the commodities most amenable to large-scale production reach their upper limits.
2. There are still a sufficient number of million-dollar farms to prevent individual farms’ domination agriculture or individual commodities. Concentration of production, however, may be a more significant concern when the owners of commodities—which include production contractors—are considered, rather than just the farms producing them.
3. Most million-dollar farms are family operations, although the operator and spouse supply only a small fraction of the labour. Direct ownership of million-dollar farms by non-farm corporations is infrequent, but such corporations are frequently involved with million-dollar farms through contracting.

The full report can be downloaded from the ERS website