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Image: Farm Economy

Background on Farm Structure

Classifying Diverse Farms

Broad descriptions of farms based on U.S. averages can mask variation among different sizes and types of farms. A farm classification—or typology—developed by ERS categorizes farms into more homogenous groupings for reporting and evaluation purposes. The classification is based largely on annual gross cash farm income (GCFI) of the farm business, the primary occupation of the operator, and ownership of the farm.

The ERS Farm Typology
Typology class and description. GCFI = Gross cash farm income.

  • Small family farms (GCFI less than $350,000)
    • Retirement farms. Small farms whose operators report they are retired, although they continue to farm on a small scale.
    • Off-farm occupation. Small farms whose operators report a primary occupation other than farming. The category also includes a small number of farms (about 6 percent of off-farm occupation farms) whose operators do not consider themselves to be in the labor force.
    • Farming-occupation farms. Small farms whose operators report farming as their primary occupation.
      • Low-sales farms. GCFI less than $150,000.
      • Moderate-sales farms. GCFI between $150,000 and $349,999.
  • Midsize family farms (GCFI between $350,000 and $999,999)
  • Large-scale family farms (GCFI of $1,000,000 or more)
    • Large farms. Farms with GCFI between $1,000,000 and $4,999,999.
    • Very large farms. Farms with GCFI of $5,000,000 or more.
  • Nonfamily farms. Farms where the principal operator and individuals related to the operator do not own a majority of the business.

The farm typology focuses on the "family farm," or any farm where the majority of the business is owned by the operator and individuals related to the operator, including relatives who do not live in the operator's household. The USDA defines a farm as any place that produced and sold—or normally would have produced and sold—at least $1,000 of agricultural products during a given year. The USDA uses acres of crops and head of livestock to determine if a place with sales of less than $1,000 could normally produce and sell at least that amount.

Revising the ERS Farm Typology

ERS revised its typology in 2013, updating the original to account for commodity price increases and shifts in production to larger farms. The measure of farm size was also changed from gross farm sales to GCFI. For use in the farm typology, GCFI is a better indicator of the size of the farm business than gross farm sales because it focuses on the revenue actually received by the farm business that can be used by the farm business. 

Gross farm sales, in contrast, exclude revenue from other farm-related income and include items that are not revenue to the farm: the value of production accruing to share landlords and production contractors, as well as Government payments accruing to landlords. For more information about the update, see Updating the ERS Farm Typology, EIB-110, April 2013.

What's included in gross farm sales and gross cash farm income
 Gross farm salesGross cash farm income
Revenue to the farm from:
  Crop and livestock sales Yes Yes
  Government payments Yes Yes
  Other farm-related income* No Yes
Value of production accruing to:
  Share landlords Yes No
  Contractors Yes No
Landlord receipt of Government payments Yes No
*Includes receipts from custom work, machine hire, livestock grazing fees, timber sales, outdoor recreation, production contract fees, etc.

Distribution of U.S. Farms, Value of Production, and Farm Assets

Based on the ERS farm typology and data from the 2012 Agricultural Resource Management Survey (ARMS), 97 percent of U.S. farms are family farms. The remaining 3 percent are nonfamily farms, which produce 15 percent of the value of agricultural output. Two features of family farms stand out. First, there are many small family farms—those with GCFI less than $350,000—making up 89 percent of all U.S. farms and holding 59 percent of farm assets. Second, most production—62 percent—occurs on the 8 percent of family farms classified as midsize or large-scale. Among small family farms, moderate-sales farms (GCFI of $150,000 to $349,999) account for the highest share of total U.S. production, at 11 percent.

Chart data
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As a group, small family farms account for 23 percent of the value of production, which falls between the shares for midsize farms (20 percent) and large farms (28 percent). Small farms' share of production is higher for specific commodities: 56 percent for hay, 55 percent for poultry, and 27 percent for beef.

Chart data
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Farm Profitability

Profitability—measured here by the rate of return on equity—is strongly associated with farm size, and varies by the typology. Sixty-one to 76 percent of retirement, off-farm occupation, and low-sales farms have a negative rate of return. The share of farms with negative returns drops rapidly for the remaining family farms after GCFI exceeds $150,000. Simultaneously, the share of farms with a return of at least 20 percent increases with farm size. Larger farms often can use their resources more productively than smaller farms, generating more dollars of sales per unit of labor and capital.

Chart data
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Why do small farms persist, given the large share of farms with a negative rate of return? There are benefits from farming that are not measured in the rate of return on equity. Farming provides the opportunity for capital gains in the long run, as well as the opportunity to leave a bequest to heirs. It also allows farm households to use losses from farming as writeoffs against off-farm income. Farmers may also value the farming lifestyle. Farmers may accept low or negative current returns from farming if they value benefits from farming other than the income the farm currently generates. Of course, operators must have enough off-farm income to absorb any negative cash flow from the farming business, even if longer-term prospects for capital gains are promising.

Last updated: Monday, October 27, 2014

For more information contact: Robert Hoppe