Five Myths About the State of the American Farmer

Report Agriculture

Five Myths About the State of the American Farmer

March 18, 1987 14 min read Download Report
James L.

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569 March 18, 1987 I w I I v I n .R y1 I 4.. Y b .I ir FIVE MYTHS ABOUT THE STATE I OF THE AMERICAN FARMER INTRODUCTION Debates about federal agricultural policy often are long on emotion and rhetoric and short on facts. At no time was this more apparent than during congressional consideration of the Food Security Act of 1985, which set a five-year program for federal farm policy.

To be sure, there are problems in U.S. agriculture, but the debate in Congress and in the media distorted and oversimplified the si tuation on the farm. One of the more ludicrous moments in. the debate.was.the appearance before a congressional committee by a trio of Hollywood farm movip" actresses to give their view of the agricultural situation. The image makers had become the expert s.

Today, barely fifteen months since passage of the Food Security Act, the legislation is generally considered a failure. Despite the expenditure of a record $25.8 billion in Fiscal Year 1986 and an expected $25.2 billion in Fiscal Year 1987, the conditio n of American agriculture has not changed significantly. Congress thus is gearing up for a new farm bill this year. The proposals offered by lawmakers range from reducing Washington's control over fanners to imposing mandaztory limits, set by Washington, on what each American farmer can grow.

As policy makers begin this review process, they should separate fact from fiction, and Hollywood from reality. They should discard 1. See Lois Romano The Farm Act: Fonda, Lange Spacek Draw a Crowd on the Hill The Was hinaton Post May 7, 1985 2. For a description of some of the options being discussed, see "Toward Agricultural Policy Reform," Economic ReDort of the .President (1987 pp. 147-178. the myths that have befogged farm policy debates in the past including 1) F a rmers are crenerallv Door. The fact: The average net worth of U.S. farms is over a quarter of a million dollars, and the average income of farm operators exceeds 30,000, much higher than that of most Americans problems have increased, a majority of farmer s are still relatively unburdened by debt. Almost 80 percent have debt-to-asset ratios of under 40 percent, with an average of about 10 percent each I a. I L U i h 2) Most farmers are in deeD debt trouble. The fact: While debt 3) Farmers are leavincr the l a nd at umrecedented rates. The fact: The rate of decrease in the number of farms and in faW population has been much lower in recent years than in the 1950s and 1960s 4) The familv farm is disamearinq. The fact: Only about 7,000 of the nation's farms, and o ne and one-half percent of the land, is owned by corporations. The "family farm" is not disappearing although it is changing 5) Federal subsidies cro to farmers in need. The fact: The majority of these subsidies go to large, well-off farmers, and are not effectively directed to those who need them most.

MYTH #1: FARMERS ARE GENERALLY POOR Most U.S. farmers are not poor, despite what Hollywood and television,portray. In fact, in terms of assets, the average farmer is doing quite well. According to the U.S. Department of Agriculture USDA), the average U.S. farm (including land, equipment, and inventory) has a net worth of $251,9

63. The largest farms--those with annual sales of half a million dollars or more--have an average net worth of $1,685,3

50. But even the smallest farms have significant net worths. The lowest income category of farms-those with sales..of.-less than $10,000 per year--have an average net worth of about $135,000.

Farms with sales of $100,000 to $250,000, mostly full-time family" farmers, have a net worth of over $350,000.

In terms of net worth, farmers are far wealthier than the average Americans. Some 61 percent of farm households have a net worth of over 100,0

00. Barely 21 percent of all Americans have a net worth that 2- high. worth, compared with less than 2 percent of all Americans.

Over 11 percent of farm households have over $50O,OfO in net Table 1 I I FARM BALANCE SHEET, 1986 r I a per.-.fam. operatfon a a ANNUAL GROSS SALES All .farm operations 500 , 000 and over 25 0 000 to $499,999 100 000 to $249,999 40 000 to $99,999 20 000 to $39,999 10 000 to 19,999 Under $10,000 ASSETS 325,087 2,335,929 831,945 504 524 320,895 233,144 174,258 147 614 DEBT 73 , 124 650 579 263 340 153 780 67 712 36,094 22,251 12 333 NET WORTH 2 5 1,963 1,685,350 568,605 350 743 253 183 4 197 , 050 152 007 135,281 Source: Financial Characteristics of U.S. Farms, Januarv 1. 1986 Economic Research Service, USDA, Bulletin #500, p. 27 I I The average farmer can hardly be considered poor in terms of ann ual income. As table 2 indicates, the net cash income of U.S. farm operators was $13,479 in 19

85. The largest farm operators averaged 237,597 in net cash income from farming, while the smallest farmers the so-called llhobbyll farmers, where the owners do not depend on the farm for their income, operated at an average loss of $3,0

58. The 3. Familv Farms: Their Place in the Farm Sector: How Well Are They Doing Economic Research Service, USDA, September 1986, pi 26 3income of the middle-sized fanners ranged from just under $11,000 to over $32,000.

ANNUAL SALES All farm operations Over $500,000 100,000 to 249 I 999 40,000 to 99,999 40,000 and under CASH INCOME FROM FARMING 237,597 68,479 3 058 OFF-FARM INCOME TOTAL 36,236 I 22,757 20 885 258 ,qa2 14,650 12 674 19,166 31,098 27,063 24 005 Net cash margin afber interest ncluding government payments.

Source: Financial Characteristics of U.S. Farms. Januarv 1. 1986 Economic Research Service, USDA, Bulletin #500, p. 25.

Farm income alone, however , does not tell the full story of the income available to farmers. Most farmers derive a significant amount of their income from off-farm jobs, sometimes working 100 or 200 days a year off the farm. On average, each farm operator received $22,757 in such off-farm income in 1985, and farmers in the $40,000-$100,000 sales class typically received over $19,000 in off-farmiincome m Thus the average farmer received over $36,000 in total income in 19

85. This is more than $8,000 higher thaf the $27,765 median annual income for all American families in 19

85. Even middle-sized ,farmers in the $100,000-$250,000 sales class did much better than the U.S median, with approximately $44,000 in income. Those in the lower 4. Economic ReDort. to the President (1.987 p. 52 4 I middle range, however, with $40,000-$100,000 in sales, had about 24,000 in total income.

These are average figures, of course, and within each category of As in the case of any other group of American farm there are many farmers making less than the. average or even suffering large losses businessmen and women, some farmers are poor, many are in the middle, and many are 'weaPthy..-m r *w I I -a m v I IC. I r qr I MYTH #2: MOST FARMERS ARE IN DEEP DEBT TROUBLE The debt burden on farmers has increased s ubstantially over the last several years. According to the Congressional Research 'Se'+ice farmers' debt-to-asset ratio (the amount they owe compared with their assets) tncreased from 18.8 percent in 1981 to an estimated 25 percent in 1986 during this tim e . The increase in the ratio has been caused not by an increase in debt, but by a 25 percent decrease in farm assets, caused mainly by falling land values. Despite the recent increase, the debt levels in agriculture are much lower than in many other .1 ind u stries. Example: The debt-afset ratio for manufacturing corporations exceeds 50 percent Yet total farm debt actually decreased by about 1 percent The debt ratio situation, moreover, has not affected all farmers uniformly 78.7 percent of farms had debt-to- asset ratios of 40 percent or less in 19

85. On average, the dePt carried by these farmers was only about 10 percent of their assets According to a recent General Accounting. Only a small percentage of farms are in severe debt trouble.

Less than 5 percent of American farms, for instance, had debt-to-asset ratios in 1985 between 70 percent and 100 percent, while a mere 4 percent rere technically insolvent with debt ratios of over-100 percent. Admittedly, the number of such farms is increasing - -it 5. Remy Jerenas, Financial Condition of the Farm Sector and of Farm Lenders, 1 I Congressional Research Service, October 9, 1986, p. 3 6. Ibid 7. The State of Small Business: A ReDort of the President (1986 p. 68 8. General Accounting Office, Farm Fin ance: Financial Condition of American Agriculture as of December 31. 1985, September 1986, p. 47 9. Ibid 5was 3 percent in 1984--and the financial condition of these farms cannot be taken lightly farms.

Yet they constitute a very small fraction of MYTH 3: FARMERS ARE LEAVING THE LAND AT UNPRECEDENTED RATES I I, I I I L I I I I i.. I The farm population is shrinking. From 1981 to 1986 the number of farms decreased by 220,000, and the total farm population decreased by 624,0

00. However, this decrease is not hing new. It conforms to a long-term trend in this and other countries. The American farm population has been steadily shrinking through most of this century and has been decreasing as a percent of the total U.S. population ever since records were first k ept. In 1900, for example, over 4O'"'percent of Americans lived on farms percent by 1960, and stands at 2.2 percent today.

This figure decreasad to about 15 In fact, the rate at which farmers have been leaving agriculture in the last few years has been qui te low compared with earlier periods. The great exodus from farming reached its peak about 30 years ago. In 1950, there were about 5.6 million farms in America. By 1955, this number had decreased to about'4.7 million, or- a drop of over 17 percent in just five years. And by 1975, there wEre about 2.5 million farms, a decrease of over 50 percent in 25 years. Between 1950 and 1970, the number of Americans living on farms decreased bs almost 58 percent, from about 23 million to just over 9.7 million.

During the 1970s, this exodus almost stopped entirely, as agriculture enjoyed nearly a decade of prosperity. From 1975 to 1980 the number of farms decreased by just 3.5 per.cent. More striking, the number of Americans employed in agriculture stayed about even'.

Indeed, there were actually 7,000 more Amerigans employed in agriculture in 1982 than there were in 1971 10. Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1970, p. 457; Bureau of the Census Note to Correspondent s February 18, 1987 11. Economic Indicators of the Farm Sector: National Financial Summarv. 1985, Economic Research Service, USDA, p 12. Other figures on the number of farms cited in this section are from this source 12. Pobulation of the United States. 1 985, Census Bureau and Economic Research Service July 1986, p 1. Other figures on farm population cited in the section are from this source 13. Economic ReDort of the President (1987 p. 2

80. The farm population did continue to decrease during this time,. dropping almost. 25 percent 6Table 3 THE DECREASING NUMBER OF FARMS YEAR 1950 1955 1960 1965 1970 1975 1980 1985 1986 Source n NUMBER OF FARMS DECREASE PERCENT CHANGE 5,648 4,654 3,963 3,356 2,949 2,521 2,433 2,275 2,214 0 994 695 607 407 89 158 71 428 0 17.6 14.8 15.3 -12.1 14.5 3.5 6.5 2.7 Economic Indicators of the Farm Sector: National Financial Summary. 1985. 1985 and 1986 numbers from National Agricultural Statistics Service, Crop Report August 1986, p. A-30.

The exodus.from fanning has resumed in the 1980s, but at a much lower rate. From 1980 to 1985, the number of U.S. farms decreased only 6.1 percent, less than half the rate seen in the.1950~ and.1960~.

Overall, the percentage decrease in the number of farms between 1975 and 1985 was the smallest the nation had seen in any decade since the 1930s. In absolute terms, the difference is even more striking.

During the 1950s, the number of farms decreased by over one and a half million. From 1975 to 1985, the decrease was less than 250,000--one-sixth th e decrease in the 1950s. In fact, almost as many farms closed in 1952 alone as were lost during that entire period 1981 and 1985, a fraction of the declines experienced earlier. The Census Bureau reported in February that it found 129,000 fewer people liv ing on farms in 1986, a change that it said was "nok a statistically significant declinell compared with 19

85. While almost seven and a half million Americans left the land during the 19508, barely one-tenth that number have left since 1981 Similarly, the farm population dropped only 9.1 percent between 14. Note to CorresDondents, OD. cit 7MYTH #4: THE FAMILY FARM IS DISAPPEARING According to the most recent Census of Agriculture, the vast majority of American farms are still operated by families or indiv i duals As of 1982, 86.9 percent of American farms were owned by families or individuals, and they farmed over 75 percent of all U.S cropland. Another" 30 percent-of farms representiny-.about 36' percent of cropland, were owned by partnerships. Only 2.7 per cent of farms and 13.6 percent of farmland were owned by corporations majority of these corporations, moreover, actually were family-owned.

Only about 7,000 farms, holding about 1.5 percent of farmland, were owned by nonfamily corporations Of course, most of the farms that are family-owned 'do'not really fit in the category of !!family farm." That term has come to mean much more than technical ownership by a family. It connotes a way of life where the farm is big enough to support a family, but not so big t hat the family hires employees to operate the farm The vast The majority of U.S. farms are too small to be considered family farms in this'sense less in gross sales each year. These farms rarely are a major source of income for thehr operators 1,635 loss e ach. But these farms usually are not intended to support families. They are for the most part operated as hobbies or as sources of extra income for Americans who work in the city For instance, such farmers may work full-time in a nearby town in. another j o b, but work their farm on weekends .for extra cash or relaxation About 70 percent of farms bring in $40,000.or In 1985, in fact, they averaged a At the other end of the spectrum are large farms, with gross sales of 250,000 or morei8 4.1 percent of all far ms. Nevertheless, these farms are responsible for close to half the gross farm income each year They are small in number, about 93,000, or In the middle are farms with gross sales of roughly $40,000 to 250,0

00. It is in this group that most farms consider ed family farms IS. Bureau of the Census, 1982 Census of Apriculture, p 35. Going further, only 1,443 of these nonfamily corporations had ten or more shareholders 16. Economic Indicators OD. cit p 43. The loss per farm operator was 3,0

58. See table 1 17. As one part-time farmer put it: "A lot of people play golf or tennis I feed hogs."

Quoted in "Keeping 'em Down on the Farm is Easy," Kansas Citv Times, September 22, 1984 reprinted in a special report The American Farm 18. Economic Indicators, p. 42 8 ca n be found. This category includes about a fourth of all farms and produces about 40 percent of gross income.

And this class of farms has been struggling the most in recent years. Yet they are not lldisappearing.ll In fact, the share of total sales produc ed by large and small farms has remained remarkably constant over the.last 25 years. The largest 1 percent of farms accounted f or--roughly 3 O--percent--of-lproduction-in 1-9 60 -and--a'ccount for about the same proportion today. At the other end of the scale 1960, the same as their share today.

While family-type farms are not disappearing, they have been changing vastly over the years. They are very different from the idealized Norman Rockwell farms pictured in popular literature box-office movie hits, a nd congressional rhetoric. They are not being taken over by large, monolithic corporations, they are becoming more businesslike themselves one-half of U.S. farms accounted for190nly 3 percent of production in The most obvious sign of this is the continuin g increase in the size of American farms: while in 1950 the average farm was 216 acres in 1985 the average stood at 455 acres. The owners of these growing farms rarely are the self-sufficient individualists of the history books. Instead of growing the fami l y food, the average farmer is more likely to buy food at a supermarket educated, todayls farmer is likely to be as well-educated as city-dwelling Americans. Rather than depending solely. upon the farm for his or her livelihood, the llfamilyll farmer is ve ry likely to get much, if not most, of his income from an off-farm job.

While hard work remains a primary requirement for farmers technology is moving in. Computers, for example, are increasingly finding a place on the farm. They are used for everything from bookkeeping to keeping track of prices at the major trading centers.

Some do more. On some dairy farms, for example; a computer--instead of a friendly farmer--now greets each cow as she arrives at the stall Instead of being poorly 19. Familv Farms, g cit p 5. Exact determination of how the proportion of farms in each sales class has changed over the years is difficult because the available data do not adjust for inflation. One recent study, however, found that the percentage of farms with receipts between $40,000 and $200,000 actually rose from 15.3 percent to 19.7 percent between 1969 and 19

78. Daniel A. Sumner, "Farm Programs and Structural Issues," in Bruce L. Gardner, ed U.S. Agricultural Policv: The 1985 Farm Legislation (Washington, D.C American Enterprise Institute, 1985 p. 294 20. 1982 Census p cit CroD ReDort;.oD. cit 9each morning, reads a small tag around her neck, and dgcides how much feed to give her based on how productive she has been. The family farm still is the most common type of farm and is not in immediate dangerzzof disappearance, but it is very diffe rent from its movie image.

MYTH #5: FEDERAL SUBSIDIES GO TO FARMERS IN NEED Federal farm programs are usually defended as an essential means of helping struggling farmers, who'otherwise would not be able to make it on their own. The truth is, only a small portion of the federal grants, subsidies, loans, and other funds ever reaches strugg,ling family farmers. certain sectors of U.S. agriculture. Crops such as wheat, corn, and cotton, receive substantial subsidies. But other crops, representing about half o f U.S. agricultural production, including vegetables fruit, cattle, hogs, and poultry, operate very successfully without direct subsidies Federal funding for farmers is concentrated fn In the case of those crops that do operate with subsidies they go dispr o portionately to the largest farms. Of the $7.7 billion in direct federal payments made to farmers in 1985, 13.3 percent went to the 1.3 percent that were the largest U.S. farms--those with annual sales of $500,000 or more. Almost a third of all direct pay m ents were made to farms with sales of $250,000 or more, altho.ugh they constitute only 4.1 percent of U.S. farms payments went to farms with over $100,000 in sales, constituting less than 14 percent of all farms. This maldistribution results in bonanzas f or many large farmers. One company in California's San Joaquin Valley, for instance, collected over $20 million in benefits in 19

86. Another company in Texas, partly owned by the crown prince of Liechtenst$$n, received $2.2 million in subsidies from the t axpayers last year And over two-thirds of government 21. See, Tomputers Taking Root, Doing More Work on the Farm," Kansas Citv Times November 19, 1984, reprinted in "The American Farm p cit 22. See also, Gregg Easterbrook, "Making Sense of Agriculture Atl a ntic Monthlv, July 1985, pp. 63-78 23. Many fruit and vegetable crops, however, are governed by production controls, in which the ultimate cost is paid by consumers rather than. taxpayers. See James Gattuso, "The High Cost and Low Returns of Farm Marketin g Orders," Heritage Foundation Backarounder No. 462, October 15, 1985 24. "Golden Eggs for Rich Farmers," The New York Times, December 26 1986 10 - Table 4 DISTRIBUTION OF FEDERAL DIRECT GOVERNMENT FARM PAYMENTS 1985 500,000 and over 13.3 1.2 499,999 to 10 0 ,000 to 250 000 249 999 99,999 to 40,000 39,000 and under 18.7 2.9 36.8 I I, I I 9.7 21.8 14.2 9.5 72.0 Source: Economic Indicators of the Farm Sector: National Financial Summarv, Economic Research Service, USDA pp. 42, 46 1 Those fanners experiencing fin a ncial difficulties, meanwhile receive only a small share of federal funds. Only about 24 percent went to fanners operating in the red. Of these, only about two-thirds had debt-to-asset ratios of 40 percent or more. The USDA usually considers a farmer to b e Ilfinancially stressedll if he or she has a debt-to-asset ratio of 40 percent or more and has a negative cash flow. Thus, under this definition, only about 16 percent of the federal money diskributed in 1985 actually went to farmers in financial stress. Conversely, not all of the farms defined as financially stressed received assistance. According to the same study, only half of the farms in financial trouble received any payments at all.

The reason for the gross maldistribution of benefits in the farm pr ograms is simDle. Subsidies are calculated not accordins to need, but according t'o the annual production of each farm. Thus, a large; b 25. Calculated from figures provided in memorandum from John E. Lee, Administrator of the USDA Economic- Research Serv ice; to' Bob .Milton; USDA Office of Economics, August 19, 1986 11 -financially secure fa- can be eligible for a big subsidy paymeat while a struggling farmer with a small crop receives less help.

CONCLUSION Congress .soon wP2-F be .considerin~.~a-,wid~~I range- of -1agisPatkon intended to help the American farmer The current farm programs cost over $25 billion last year and may be doing farmers more harm than good. Nevertheless, debates on farm issues in Congress and the media too often tend to based on m i sconceptions about the current state of the American farmer policy makers must remember that farmers as a group are not generally poor. Some farmers are in deep financial trouble, but the vast majority are not. The decline in the number of farmers is part of a very long-term trend, but the family farm is not disappearing. And farm subsidies, however well-intentioned, are not going primarily to farmers who are in need. Carefully directed approaches, based on fact are needed, not billions of federal dollars, based on fiction Such a review is long overdue In fashioning remedies for the acute problems of some farmers James L. Gattuso Policy Analyst I 26. Payment limitations of $50,000 per person for direct subsidies, and $250,000 overall are now in effect, but because of difficulties in defining what constitutes an individual farmer, these limits are easily avoided 12


James L.