Director's Column

The National Small Farms Commission will hold what is possibly its last working session in Washington, D.C. in mid-December. Commission members hope to have a report in USDA Secretary Dan Glickman's hands by the end of January. In the meantime, a delegation of Commission members met with Secretary Glickman and President Clinton at the White House on December 17th. Also in attendance were the Honorable Eva Clayton, Congresswoman from North Carolina, along with representatives of minority farmers.

The Commission has held hearings and received input from a wide variety of persons all across the United States -- from the Mississippi Delta to the prairies of North Dakota to the Pacific Northwest. What the Commission heard and read confirms the appropriateness of Secretary Glickman's action in appointing this Commission and in charging it with looking into the status of America's small farm operations and making recommendations on needed changes.

The bulk of all farms -- 98 percent according to USDA -- are family farms. But the trends in the size distribution of farms, and even more, the trends in the structure of agribusiness, are troubling. With respect to these farms, out of a total of 2,035,500 farms nationwide in 1994, it has been calculated that 1,482,980 farms (or nearly 75 percent), had an average farm income of only $12,000 in 1994. Another 211,132 farms had an average income of $74,000. And yet another 220,888 farms averaged only $149,000 in income. All of these farms had a negative rate of return on equity. Some will quibble that most of these are not "real" farms --they are "hobby farms." And some are.

But even for those farms that gross between $250,000 and $500,000, return on equity is only 3 percent compared with a return on equity of 9 percent for farms with gross cash income of over $1,000,000. It is hard to argue that a farm with sales between $250,000 and $500,000 is a hobby farm.

Underlying Factors

Many factors contribute to the disparities in economic performance.

• Agricultural markets (for inputs as well as for products) are significantly less competitive now than two decades ago. Hence, the cost of inputs has increased much faster than the prices for products.
• There is a belief that research and technological developments, in general, have not been as size-neutral as postulated, but may have favored large volume production units.
• Government payment formulas have favored large production units. While more than 50 percent of farms receiving government payments were farms of less than $50,000 in sales, they received a total of less than 30 percent of all government payments. The smaller farms' average receipts were $1,299 vs. an average of $21,715 for the largest farms.

While average household income for farm operators was about equal to the U.S. average ( $42,469 vs. $43,133), farm income averaged only 10 percent of farm household income, as illustrated in Table 1.

Table 1. Sources of Income for Farm Operators

Needless to say, off-farm income increased as farm income and the size of farm decreased. Only two sales classes had significant farm earnings as a share of average household income. These classes were $250,000-$499,999 range and the $500,000 and above range. Average household income was $155,711 for the $250,000-$499,999 class range.

When the USDA examined the financial position of all farms, the largest risks of farm failure were in the groups from $100,000 up to $1,000,000 in sales, and the worst group was in the $500,000 to $999,999. Only 56.5 percent of those farm operations had a favorable financial situation. And only 61.4 percent of all farms had a favorable financial rating. These data do not lend themselves to complacency. They portend a potential hollowing out of the heartland. The social and political fallout of that eventuality would be incalculable. We cannot let it happen!