Monday, April 25, 2011

High crop prices are good for farmers

This headline might seem obvious.  Farmers get paid more when crop prices are high.

So, I was surprised to read the title of the recent report by Tim Wise of the Global Development and Environment (GDAE) Institute here at Tufts:
Still Waiting for the Farm Boom:
Family Farmers Worse Off Despite High Prices
The GDAE frequently does good work advocating for the environment and for the interests of the world's poor, but let's give this claim a skeptical look.

Driven in part by high energy prices, and the use of crops for biofuels, world food crop prices are once again at or near record levels. This trend is worrisome for consumers, especially in developing countries, but it is good news for farmers around the world.  For U.S. farmers, net farm income is expected to be 20% higher in 2011.

It is wise to draw some distinctions within the broad category of U.S. farmers, because the boom times could be reaching some farmers more than others.  Table 1 shows USDA's 2009 estimates for two groups of farmers that sometimes get muddled together under the heading "family farmers."  This is the same most recent year and data source that Wise's report uses.  In this table, following USDA conventions, the small family farms have sales of $100,000 to $250,000.  The large family farms have sales of $250,000 to $500,000.  The table excludes very large family farms and non-family-owned corporate farms on the one hand, and small hobby farms or "rural residence" farms on the other hand.

Table 1 shows that the small family farms had somewhat lower average household income than the U.S. average in 2009, and they would not be able to get by on farm income alone. Many farm families include at least one person working in the paid labor market. The large farms, by contrast, had much higher average household income than U.S. average household income.

There might be some grounds for saying that the small farms are still waiting for the boom, but the large farms seem to be doing well.  This distinction is important. If we describe large family farms as "still waiting for the boom," it could be a recipe for bad policy. It could contribute to a rhetoric of pity for U.S. farmers at a time when most U.S. farmers -- even many family farmers -- are doing well, while other people's hardships are neglected by governments.

Table 1.  Farm income and selected characteristics in 2009 (USDA data).

Informal name
Small family farms
Large family farms
Formal USDA terminology
Small, farming occupation, higher-sales
Large, excluding corporate farms

Average annual operator household income

  From farming sources ($)
  From non-farming sources ($)
  From all sources ($)
Percent of U.S. average household income

Total value of production ($ billions)
Total acreage (million acres)

All products

  Number of farms
  Average acreage per farm

  Number of farms
  Average acreage per farm

  Number of farms
  Average acreage per farm

  Number of farms
  Average acreage per farm
Cattle [Update: previously "beef"]

  Number of farms
  Average acreage per farm

Who are the large family farmers in the second column? The largest number are corn farmers. If you picture a typical corn farm of 849 acres, or a typical soybean farm of 1,157 acres, you are picturing one of these large family farms. These are serious businesses, and they typically have some hired labor, but they are owned by the family that operates the farm. As you drive across the U.S. rural landscape, most of the cropland you pass belongs to farms that are this large or larger. The largest fraction of total food production value comes from farms that are this large or larger.

Who are the small family farmers in the first column?  The largest number are cattle operations, with large acreage but frequently with fragile finances.  Among other things, many of the livestock businesses face rising costs for animal feed, due to the very same crop price increases that allow crop farmers to prosper. Annual sales of less than $250,000 is quite small for a full-time crop farm business, and most of the crop farms in this category are quite small.  The average corn farm in this category has only 533 acres, and the average soybean farm has 597 acres, a scale that may have only marginal economic success.

In the GDAE report, Wise only tabulates the small family farms in the first column. The report does not include the data I have provided for the second column, nor does it distinguish different farm products within each column as Table 1 does.

Yet, Wise describes the small farms in a way that seems to characterize a larger class of farmers, breezing over the fact that many family farmers are doing well. Consider this description of the scale of the farm: "In 2009, the average farm household in this group farmed 1,104 acres, but earned just $19,274 from farming." By quoting such a large acreage, the report implies larger crop farms than the report's data really describe. Though the GDAE report does not mention it, this large acreage is an average of the comparatively small acreage for many crop farms (533 acres for corn, 597 acres for soybeans) and much larger acreage that is typical for wheat farmers and cattle ranchers.  The report seems to be discussing commercial family crop farm businesses, but does not point out the much smaller acreage of most crop farms in this category.  Wise's blog post introducing the report drives the point home: "These are not small farms: average size is 1,100 acres and gross sales are $100,000-$250,000."

There is a long tradition in U.S. farm politics of telling stories about the plight of small farmers and then subtly slipping large family farms under the same umbrella, in order to pass subsidy policies that provide the greatest economic benefits for large farmers. It seems misdirected for GDAE to say of the first column, "these are not small farms" when the data come precisely from USDA's "small farm" category, and other family farms are not tabulated.  The sales cutoff of $250,000 will sound lucrative to many non-farm readers, who are accustomed to thinking about labor market income rather than sales, but these are quite small farm businesses that are "still waiting for the boom."

Most mid-sized to large family farms, and especially most family-operated crop farms with 800-1,000 acres or more, are doing quite well when prices are high. I imagine that on reflection Wise would agree that farms on this scale were not the intended subject of his concern.

[Update: Tim Wise has a thoughtful response in the comments section.]


Anonymous said...

In many developing countries, at least, farming households are still net-buyers of food. So, while high prices might look good for farmers on the surface, they are actually hurt on their consumption end.

usfoodpolicy said...

Yes, high crop prices are worrisome for net food buyers in developing countries.

High prices are beneficial for farm households that are net food sellers. More subtly, high prices are beneficial even for many net food buyers in rural communities, such as farmers whose part-time work outside of their own farms is in farm labor for other farms, or farm input supply, or businesses that sell goods and services to farmers. All told, I would not be too quick to paint high crop prices as a bad thing for most rural farmers in developing countries.

Mike said...

Tractor Supply: "Net sales increased 17.7% to $836.6 million from $710.9 million in the prior year's first quarter."

"or farm input supply, or businesses that sell goods and services to farmers" ...

These business don't sell exclusively to farms, they sell to the wanta be farms on the metro fringe. Big difference.

Tim Wise said...

Thanks to Parke for digging deeper into the USDA data and presenting how other sectors of the family farm community are doing with higher prices. In my policy brief, I intentionally used the term "small and mid-scale family farms" as a way to distinguish them precisely from the larger farms Parke highlights. These are not what USDA in its ARMS survey call "small family farms." Those are really too small to be viable, as noted in the report. But I'd defend the reference to the $100,000-250,000 sales class of farmers as "small to mid-scale." Parke is right that the category includes some ranchers who skew upwards the average acreage for the group, but more than half are grain farmers of one kind or another. A closer look at the different crop specialties shows the variety of experiences among different types of farmers. Not surprisingly, crop farmers do better than livestock farmers, something I note in the policy brief. The same is true among the large farms.

But the real point of the policy brief was to show that not all farmers are actually better off economically under the high-price scenario, because expenses are up dramatically (continuing a long trend in which expenses have risen faster than farm sales) and because farm payments decline with lower prices. These are full-time, commercially viable farms, and it remains striking that a large number of them see so little benefit even when crop prices are high.

Parke is right to point out that these farms do not represent all family farms, and some are certainly doing better, and some are actually doing quite well. That said, it would certainly be a shame to dismiss these farmers as just too small to be viable, following the "get big or get out" trends in US agriculture. I would like to see US agricultural policies that help sustain this sector of our farming communities.