Million-Dollar Farms in the New Century
by
Robert Hoppe, Penni Korb, and David E. Banker
Economic Information Bulletin No. (EIB-42) 47 pp, December 2008
Small farms (those with annual sales less than $250,000)
represent a large majority of U.S. farms (92 percent), but account
for a relatively small share of total farm production (23 percent).
This report 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 percent of all
U.S. farms-accounted for 48 percent of the sales of U.S.
agricultural products.
What Is the Issue?
Understanding million-dollar farms is especially important
because of the large and growing share of U.S. food and fiber they
produce. This report examines the growth of production from
million-dollar farms since the 1980s. It lays out the current role
of million-dollar farms in U.S. commercial agriculture, including
their share of farms, their production of specific commodities, and
their receipt of Government payments.
What Did the Study Find?
Major 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 U.S. farm sales from 23
percent in 1982 to 48 percent 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.
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.
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 commodi-ties,
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 percent of U.S.
Government payments in 2006, a small share compared with their
48-percent share of gross sales, although disproportionately large
compared with their 2-percent share of all farms.
Million-dollar farms have more operators than farms with lower
sales. The number of operators per farm averaged 1.5 for all farms
in 2006, but 2.1 for all million-dollar farms and 2.6 for
$5-million farms. Multiple-operator farms accounted for 66 percent
of million-dollar farms, substantially more than the 46-percent
share for farms in general. Multiple-generation farms-those with at
least 20 years' difference between the ages of the oldest and
youngest operators-made up a larger share of million-dollar farms
(23 percent) than any other sales class.
Most million-dollar farms are family operations. Eighty-four
percent of the million-dollar farms in 2006 operated as family
farms-defined as any farm where the majority of the business is
owned by the operator (or the principal operator on
multiple-operator farms) and individuals related to the operator.
Only 7 percent of million-dollar farms were organized as nonfamily
corporations, generally with no more than 10 stockholders. The
situation was similar for farms with sales of $5 million or more,
although a smaller share (64 percent) was classified as family
operations and a larger share (21 percent) as nonfamily
corporations. The operators and spouses on million-dollar farms,
however, provided only 10 percent of the farms' labor, compared
with 39 percent for farms with sales between $500,000 and
$999,999.
Million-dollar farms account for most contract production.
Thirty-nine percent of U.S. farm production came from farms with
production or marketing contracts in 2006, and million-dollar farms
accounted for about 62 percent of this contract production.
Sixty-three percent of million-dollar farms used contracts, and
about half of their production- mostly livestock-was under
contract. Note that farms with production contracts only receive a
fee from contractors, and only the fee-rather than sales-is
included in their gross cash income. Measuring size by gross cash
income rather than sales would reduce the number of million-dollar
farms among some specializations, such as poultry farms.
Million-dollar farms also served as contractors. Approximately
5,400 farms reported contracting livestock production (including
poultry) out to other farms. The share of farms contracting
livestock production out was highest for $5-million farms at 12
percent.
How Was the Study Conducted?
Most of the data in this report are from the 2006 Agricultural
Resource Management Survey (ARMS). The ARMS is a detailed, annual
survey of farm businesses and associated households conducted
jointly by the U.S. Department of Agriculture's Economic Research
Service (ERS) and National Agricultural Statistics Service (NASS).
The report also uses data from the last five censuses of
agriculture to follow the shift in production to million-dollar
farms. Finally, the 2002 Census of Agriculture Longitudinal
File-which links records for individual farms from the last six
censuses-traces the history of today's million-dollar farms.