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Commodity Payments, Farm Business Survival, and Farm Size Growth
Nigel Key and Michael J. Roberts
Economic Research Report No. (ERR-51) 47 pp, November 2007
What Is the Issue?
Farm structure is undergoing a complex set of changes. The census of agriculture shows
increasing numbers of small farms (less than 50 acres) and large farms (1,000 acres or more), but
also sharp and ongoing declines in the number of farms in the middle. Small farms, while
numerous, account for less than 2 percent of all U.S. farmland, while large farms account for 67
percent. Consequently, the growth in the number of large farms has increased the concentration
of crop production—that is, an increasingly large share of cropland and production is concentrated
on relatively few large farms. A number of factors, including technological change or
changing factor prices, could have driven the increase in concentration of production.
Commodity program payments may also be contributing to the growth in concentration—
allowing farms that receive more payments to grow faster than they would have without
payments.
This report uses data from five agricultural censuses (1982, 1987, 1992, 1997, 2002) to determine
whether there is a statistical relationship between the level of commodity program
payments received and subsequent changes in farm structure. The analysis pursues four broad
questions. How can changes in concentration of agricultural production be measured and how
has it changed? Is there a link between concentration of agricultural production, farm size or
farm survival, and commodity program payments? If so, how large and how extensive is this
link? Finally, what might drive the observed links?
What Did the Study Find?
Crop production is shifting to larger farms. For example, farms with at least 1,000 acres in corn
harvested 19.8 percent of all U.S. corn acres in 2002, up from 4.6 percent in 1987. Farmland has
shifted to larger enterprises in most commodities and in most parts of the country, although the
rate of growth varies substantially by location and across commodities.
Commodity program payments per acre displayed a strong positive association with subsequent
increases in cropland concentration (weighted-median farm size). Areas with higher average
payments per acre had higher rates of concentration growth over the subsequent 5-year period. In
addition, areas with higher payments per acre at the beginning of this analysis (1987) had faster
growth in concentration over the next 15 years. The association between payments and concentration
growth was maintained after controlling for several factors that might affect concentration growth, including the initial (beginning of period) level of concentration, land characteristics such as crop sales per
acre, the share of cropland in all farmland, and location.
An analysis of program crop producers finds past commodity payments as a share of sales to be positively and
significantly associated with the observed lifespan of farm businesses. The 25 percent of farms with the highest
payment as a share of sales had a longer lifespan than farms in the lowest quartile. After controlling for farm and
operator characteristics that might be correlated with farm survival, the positive relationship between program
payments and farm survival rates persisted. Commodity program payments appear to have a larger effect (on estimated
farm business lifespan) for operations with higher sales than for those with lower sales. A separate analysis of
producers specializing in four major crop categories found that, conditional on survival, payments are positively
associated with subsequent growth in farm size.
The apparent association between payments per acre and subsequent growth in concentration is consistent with the
hypothesis that commodity program payments accelerate structural change. However, it is not possible to rule out
other explanations for the association between payments and farm structure. If unobserved factors that influence
concentration growth are also associated with government payments, then the association between payments and
concentration may stem from the unobserved factors rather than payments. Despite efforts to account for many
kinds of unobserved factors, it is impossible to know for certain how large of an issue this may be. This is a standard
caveat for studies that use data collected from the observed world rather than from a carefully designed experiment.
How Was the Study Conducted?
The study relies on farm-level records from the census of agriculture, including a farm’s acreage (cropland and all
farmland) and commodity mix, its gross income from sales and from commodity program payments, and its location
(State, county, and ZIP Code). Use of census data enables the researchers to develop measures of land concentration
for local areas (as defined by ZIP Codes) and to track changes in the size of individual farms and regions over time.
Concentration of production is measured using the weighted-median farm size: the farm size at which half the land
in a ZIP Code is in larger farms and half is in smaller farms.
The study illustrates how cropland concentration varies across ZIP Codes, and how the distribution has changed over
time. Payments per acre vary widely across ZIP Codes and reflect differences in crop mix, crop yields, and operator
enrollments in commodity programs. The authors compare how cropland concentration has changed in ZIP Codes
with different initial levels of farm payments per acre. The authors use statistical regression analyses to assess the
robustness of the link between payments and concentration. The ZIP Code analysis is supplemented with farm-level
analyses of the link between commodity program payments (expressed as a share of farm sales) and farm business
survival and subsequent farm growth.
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