Growing Farm Size and the Distribution of Farm Payments

Growing Farm Size and the Distribution
of Farm Payments
James MacDonald, Robert Hoppe, and David Banker

Commodity program payments shifted sharply to higher income households between 1989 and
2003. While Congress made important changes to program design in the 1996 and 2002 farm bills,
this shift was not caused by change in design. Instead, changes in payment flows resulted from
structural changes in farming that are driving production to very large family farms. We expect
those structural changes to continue, because larger farms appear to be more profitable and
because many more operators of smaller farms are nearing retirement age. In consequence, in the
absence of any fundamental changes to commodity policy, commodity payments will continue to
shift to higher income households.

ECONOMIC BRIEF

Growing Farm Size and the Distribution of Farm Payments

Agricultural Production Is Shifting to Larger Farms
The trend to larger
farms is sectorwide.

Family-operated farms continue to account for most U.S. agricultural production. The share of production held by nonfamily farms has grown over time, but still accounted for just 14 percent of the value of
production in 2003 (fig. 1). A more striking shift is toward very large family farms (sales of at least
$500,000, in 2003 dollars), which accounted for nearly half (45 percent) of production in 2003, up from
32 percent in 1989. The number of those very large family farms also grew—from 39,700 in 1989 to
66,700 in 2003. Meanwhile, the share of production on smaller family farms ($10,000-$250,000 in sales)
fell from 40 percent in 1989 to 26 percent in 2003.

Figure 1
Agricultural production is shifting to larger farms
Percent of value of production
50
1989
2003
40

44.7
31.6

30
11.3

10
0

20.7

19.5

20

19.9
14.4

14.2

13.7
6.2

2.1 1.6
Less than
$10,000

$10,000$99,999

$100,000$249,999

$250,000$499,999

$500,000
or more

Nonfamily

Farm sales class (2003$)
Source: USDA, 1989 Farm Costs and Returns Survey and 2003 Agricultural
Resource Management Survey.

Figure 2
Crop and livestock production is shifting to very large family farms
(sales of $500,000 or more in 2003$)
Hogs

61.1

16.2

Poultry & eggs
Dairy

27.4

Cotton
Peanuts
Tobacco

12.8

75.2

48.3
43.1
58.4

43.9
45.3

20.4
26.6

1989
2003
32.8
13.3
0
10
20
30
40
50
60
70
80
Percent of value of production from very large family farms
Source: USDA, 1989 Farm Costs and Returns Survey and 2003 Agricultural
Resource Management Survey.

Cash grains & soybeans

Figure 3
Operating profit margin by size of farm, 2003
Farm sales class (2003$)
Percent
40
20
0
-20
-40
-60
-80
-100
-120

Less than
$10,000

$10,000$99,999

$100,000$249,999

$250,000$499,999
10.6

$500,000
or more
16.4

-1.8
-24.8

-98.0

Source: USDA, 2003 Agricultural Resource Management Survey.

UNITED STATES DEPARTMENT OF AGRICULTURE

Nonfamily
15.3

The trend to larger farms is sectorwide. The shift to larger livestock operations is well-documented and pronounced. For example, family farms with at least
$500,000 in production value held 61 percent of hog
production and 75 percent of poultry and egg production
in 2003, up from 16 percent and 48 percent in 1989 (fig.
2). But important shifts are also occurring in crop production, where very large family farms hold rapidly growing
shares of production in cash grains and soybeans, tobacco, cotton, and peanuts, crops traditionally covered by
commodity programs and farm legislation.
We assess changes since 1989 because we have accurate
and comparable data on farm production, farm household incomes, and farm payments starting in 1989. But
changes in farm structure were clearly occurring before
that time; the census of agriculture shows ongoing shifts
of production to larger farms in the 1970s and 1980s,
continuing after the dramatic decline of farm numbers
that had occurred between 1935 and 1975 had run its
course. We expect these changes in farm structure to
continue, for two broad reasons.
Many small farm operators are nearing retirement.
Among the principal operators of smaller commercial
farms, those with sales between $10,000 and $250,000, the
share who are age 65 or older has risen sharply since 1989,
suggesting that many are near retirement and not simply
transferring the farm to younger operators. More specifically, over 30 percent of operators in the $10,000-$99,999
sales class were at least 65 years old by 2003, versus 13 percent of the operators of very large family farms.
Larger farms realize higher profits, on average (fig.3).
Margins (the ratio of operating profit1 to gross farm
income) were negative, on average, for farms with sales
below $250,000 in 2003, and they rose steadily as farm
sales increased. The pattern (losses among small farms,
and a strong relation between margins and farm size)
holds in earlier years, and suggests that there are strong
financial pressures driving production toward larger
enterprises.
1Net farm income plus interest payments, minus the opportunity cost of operators’ unpaid labor and management time.
2

Growing Farm Size and the Distribution of Farm Payments

ECONOMIC BRIEF

Commodity Program Payments Are Shifting to Larger Farms

About the Data

Federal commodity programs have traditionally provided support to producers of selected commodities, principally grains and oilseeds. With production of “program commodities” shifting to larger
farms, commodity payments are also shifting in that direction, since payments are linked to planting and
yield histories.
Commodity payments include all commodity and disaster assistance payments, and exclude environmental
payments, such as payments received under the Conservation Reserve Program (CRP) or the
Environmental Quality Incentives Program (EQIP). Commodity payments reflect a farm’s production
history for certain commodities. Specific programs have applied to dairy, peanut, and tobacco production, while broader programs have applied to field crops such as barley, corn, cotton, oats, rice, sorghum,
soybeans, and wheat. Payments are tied to the amount of a farm’s cropland that has been enrolled in programs, as well as yield histories. As a result, farms that produce higher volumes of program commodities
generally receive higher payments.
High-value crops, as well as fed cattle, hogs, and poultry, are not supported by traditional government
price and income support programs, although they do receive disaster assistance and occasionally may
benefit from an ad hoc support program. Consequently, farms that produce such commodities receive
substantial commodity payments only if they also produce program commodities or have a history of
producing them. Because production of fed cattle, hogs, poultry, and high-value crops tends to occur on
very large farms, farms in that sales category have traditionally drawn relatively small shares of total commodity payments.
However, as production of traditional program commodity crops shifted to very large farms, commodity payments also shifted sharply (fig. 4). Farms with less than $250,000 in production value (2003$)
received 63 percent of commodity payments in 1989; by 2003, they received 43 percent of payments. But
farms with at least $500,000 of production received 32 percent of all commodity payments in 2003, up
from 13 percent in 1989.

Operators of the Largest Farms Have Higher Incomes
Farm households are not, in general, poor. Mean household income among all U.S. farm operator households was $68,500 in 2003, which compares favorably to the nationwide mean household income of
$59,100 (for more on how household incomes are distributed, see Economic Brief No. 7, Economic WellBeing of Farm Households). Moreover, mean incomes do not vary sharply with farm size among smaller
farms, those with sales below $250,000. Operators of the smallest farms, those with less than $10,000 in
sales, derive almost all of their household income from off-farm work and from unearned income, such as
Social Security, pensions, and
financial investments. About 75
Figure 4
percent of those operators
Government commodity payments are shifting to larger farms
report negative incomes from
Percent of commodity payments
farming, but those losses are off35
set by enough off-farm income
31.8
1989 2003
29.4
to raise their household incomes
30
above the national average.
24.6
25
23.0 22.6
Households that operate farms
20
17.1
with annual sales up to $250,000
15
frequently combine a financially
10
viable farm business with off5
farm employment to generate
2.1 1.3
0
household incomes that match
Less than
$10,000$100,000$250,000or exceed national averages.
$10,000

$99,999

$249,999

$499,999

Data on farms and farm
operator households were
obtained from USDA’s
Agricultural Resource
Management Survey
(ARMS) and its predecessor, the Farms Costs and
Returns Survey (FCRS). The
FCRS first reported comparable data in 1989, so we
used that year as our starting point. Our classification
sorts family farms among
five sales classes, and
assigns all nonfamily farms
to a sixth class. Income
data for all U.S. households
were obtained from the
U.S. Census Bureau’s
Current Population Reports,
Series P-60. We accounted
for changes in farm product prices by converting all
farm sales figures to 2003
dollars, using the Producer
Price Index for Farm
Products, and we converted
all household income figures to 2003 dollars using
the Consumer Price Index
(CPI-U), in order to account
for changes in the purchasing power of incomes.

31.8

12.7
1.1 2.7
$500,000
or more

Nonfamily

Farm sales class (2003$)
Source: USDA, 1989 Farm Costs and Returns Survey and 2003 Agricultural Resource Management Survey.

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ECONOMIC RESEARCH SERVICE

ECONOMIC BRIEF

By 2003, half of
commodity payments
went to households with
income above $75,772.

Growing Farm Size and the Distribution of Farm Payments

However, operators of very large family farms realize much higher incomes, on average, and as production shifts to those farms, it also shifts to much higher-income farm households. The principal operators of very large family farms reported a mean household income of $214,200 in 2003, well above the
mean across all family farms, and well above the mean of $102,400 reported by principal operators in
the next largest size class ($250,000-$500,000).

Commodity Payments Are Shifting to Higher-Income Households
In 1989, half of commodity payments went to principal operators whose households earned more than
$45,808 (in 2003 dollars), and half went to principal operators whose households had incomes below
that figure (table 1). To further summarize the distribution of payments in 1989, one quarter went to
households earning more than $94,784 (also in 2003 dollars), while 10 percent went to households with
incomes above $189,149.
Since then, payments have shifted sharply to higher-income farm households. By 2003, half of commodity payments went to households with income above $75,772. One quarter went to households earning
more than $160,142, and 10 percent of payments went to households earning more than $342,918.
Because household incomes did not rise sharply with farm sales among operators of farms with less than
$500,000 in sales, shifts in production to larger farms within these size classes did not shift commodity
payments to noticeably higher income households. Rather, the apparent shift in commodity payments to
higher income households is being driven by shifts of production to the largest class of farms (over
$500,000 in sales), whose households have substantially higher incomes.
These shifts have far outpaced the growth in overall U.S. incomes. Between 1989 and 2003, median U.S.
household income grew by just 1 percent, from $42,892 (2003 dollars) to $43,318. The median U.S.
household income in 1989 was near the median of the farm payments distribution ($45,808). This was
not so by 2003.
In the last two decades, incomes have grown most rapidly at the upper levels of the income distribution;
at the 90th percentile (10 percent of households earn more), U.S. income grew by 10 percent between
1989 and 2003. The incomes of households receiving most commodity payments have grown even more
sharply than this. In short, commodity payments are being shifted, through structural change, toward
relatively high-income households.
Table 1—Commodity Payments Are Shifting to Higher-Income Households
1989

1991
1997
2003
Household Income (2003$)

1989-2003
change
Percent

Commodity Payments Distribution

See also . . .

50th percentile (median)

45,808

47,121

55,607

75,772

65.4

75th percentile

94,784

98,657

122,868

160,142

69.0

90th percentile

189,149

196,442

250,092

342,918

81.3

Farm Structure briefing
room, ERS website,
www.ers.usda.gov/Briefing/
FarmStructure/

All U.S. Households

Carol A. Jones, Hisham ElOsta, and Robert Green.
Economic Well-Being of Farm
Households, U.S. Dept. Agr.,
Econ. Res. Serv., EB-7,
March 2006.

Note: Half of commodity payments go to households with incomes higher than the 50th percentile;
a quarter go to households with incomes higher than the 75th percentile, and a tenth go to households with income higher than the 90th percentile.

50th percentile (median)
90th percentile

42,892

40,686

42,425

43,318

1.0

107,580

103,394

112,589

118,200

9.9

THE U.S. DEPARTMENT OF AGRICULTURE IS AN EQUAL OPPORTUNITY PROVIDER AND EMPLOYER
For more information, see www.ers.usda.gov/abouters/privacy.htm

UNITED STATES DEPARTMENT OF AGRICULTURE

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