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Agricultural Economics
Staff Paper 79-45
FILE: 17.27
SMALL FARMS IN U. S. AGRICULTURE
Ralph E. Hepp
Extension Economist
Department of Agricultural Economics
Michigan State University
The United States has always had family owned and operated small as well as
larger farms. Many factors have affected farm size and the structure of American
agriculture, but underlying the agricultural system has been a philosophy based
on the principles of competition and free enterprise. The introduction of new
technology has resulted in a trend toward fewer and larger farms and a concern
for the economic and social viability of the small farm and rural communities.
The change toward larger farms is taking place, but at a slow rate. Small
farm operations are significant contributors to agricultural production. The
problems of the small farm operator are important. This paper defines a small
farm, discusses the characteristics of small farms and owner-operator's on
small farms, and the application and adoption of technical practices on small
farms.
The terms limited resource farmers, small farmer, part-time farmer, small
grower, small farm, family farmer, etc., are used by many agriculturalists to
denote relatively small farming operations. However, there is no consensus as
to how to define a small farm or what to call these small operations. In many
cases a term is used which attempts to describe both the operator characteris-
tics and the farm size (i.e., small farmer). But these terms do not adequately
describe the situation on small farms. Therefore, I will separately discuss
farm size and the characteristics of the owner-operators on small farms.
What Is A Small Farm?
The definition of a small farm is limited by the data available to classify
farms if we want to quantify the number and characteristics of farms by size.
Since the Census of Agriculture is the most complete source of data, standard
terminology by the USDA and the Census Bureau is used. In the 1974 and later
Census, a farm is defined as any agricultural operation from which $1,000 or
more of agricultural products were sold or were expected to be sold during the
census year. Prior definitions included an acre criteria (10 acres) and an
agriculture sales criteria ($50 or $250 in sales).
Farm size has commonly been measured by capital investment, physical units
(i.e., acres, labor or livestock numbers), gross income and net income. Since
net income measures are hard to obtain, and capital investment has valuation
problems, farm size is usually measured in physical units or gross income.
Physical units are a good measure of farm size if comparisons are made with one
enterprise or farm type. For example a 40 cow dairy farm can be compared to a
100 cow dairy or a 300 acre cash grain farm can be compared to a 1,000 acre
cash grain farm. But physical units cannot be used to compare farm types, such
as acres and cows. Gross farm income provides a size measure which is comparable
across farm types and is used in the definition.
Small is a relative term meaning little, not big or not great in importance
or value. If we apply the term small to a farm size measure, any number of
sizes can be used in an analysis if the breakdown into sizes has meaning. For
the purposes of our analysis I will refer to farms in three size groups, small,
medium and large based upon gross income. Gross income breaks between size
groups is determined by the data available, and the minimum farm size needed
to support a family.
Net farm income is defined as the residual income to the owner-operator for
labor, management and equity capital. In the last five years, net farm income
as a percentage of gross income has been about 25 percent -- varying from 35
percent in 1973 to 19 percent in 1977. Small farms usually have a slightly
higher net margin than larger farms because small farms are more labor intensive,
more labor is contributed by the family and a larger percent of the capital is
equity capital versus debt capital. If we accept the 25 percent net margin as
a general guide,$40,000 gross income would return $10,000 to the family for
family resources or a minimum acceptable standard for family income. The Census
of Agriculture classifies farms by $40,000 and $100,000gross sales along with
other smaller and larger breakdowns. Therefore, farm size is defined as follows:
1) small farm less than $40,000 sales
2) medium farm between $40,000 and $100,000 sales, and
3) large farm over $100,000 sales.
A $50,000 or even $60,000 gross sales break for a small farm would be more accept-
able from a family income standpoint, but the Census data is not available.
As you might expect, most farms by number of farms are small. In 1977,
USDA data shows 2.7 million farms, 81 percent small farms, 13 percent medium
farms and 6 percent large farms (Table 1). The north central region has about
half of the total farms and typically has many small farms.1
Production Obtained from Small Farms
The production contribution from the small farm varies depending upon what
production factor is used in comparing farm sizes. This section will document
the sales, acres in major crops and livestock production by farm size.
In 1977, small farms contributed 22 percent of the sales, medium farms had
26 percent of the sales and large farms accounted for 52 percent of the sales
(Table 1). However, small farms accounted for a larger share of the net farm
income than larger farms. The north central region generates about 45 percent
1The north central region includes Ohio, Indiana, Illinois, Michigan, Wiscon-
sin, Minnesota, Iowa, Missouri, North Dakota, South Dakota, Nebraska and Kansas.
of the total U.S. agricultural sales and depends more upon the small farm for
the output. Twenty-seven percent of the sales in the north central region comes
from small farms, 33 percent from medium farms and 40 percent from large farms.
The states vary considerably upon its reliance on small farms with Wisconsin
depending the most and Nebraska depending the least on the small farm for its output
(Table 2). It appears that type of enterprise, historical farm settlement
patterns, geography, availability of off-farm employment and other factors are
important reasons why some states have more small farms.
Sales of agricultural products only reveal part of the production signifi-
cance of the small farm since crops on some small farms are fed to livestock and
productivity on the small farm is less than larger farms. Small farms operate
38 percent of the harvested cropland and are major contributors of hay. One out
of three harvested acres of wheat, soybeans, orchard crops and cotton are from
the small farms (Table 3). Vegetables and corn are grown on larger farms. Approxi-
mately one-third of the livestock sales are from small farms, but less than 6
percent of the broilers are from small operations (Table 4). Almost 60 percent
of the beef cows are on small farms and about one-third of the dairy cows are on
small farms (Table 5).
Who Is the Small Farm Operator?
Small farm operators are farm owners, operate on a small scale,are usually
debt free and depend less upon the farm for their livelihood. The objectives
for the farm are more diverse than larger farmers since most medium and large
farmers are farming full-time and obtaining the majority of the family income
from the farm. Interviews with small farm operators in Michigan resulted in
categorizing operators to better understand the motivation for the small farm.2
2Description and Analysis of Michigan Small Farms, Res. Report 296, Agri-
cultural Experiment Station, Michigan State University.
Three groups were identified: 1) part-time farmers, 2) part-retired farmers and
3) full-time small farm operators.
The 1974 Census of Agriculture provides information on part-time farms and
classifies the farm operator by principal occupation as farming or other accord-
ing to what occupation the operator spent 50 percent or more of his work time.
Forty-five percent of the small farm operators who responded to the 1974 Census
of Agriculture said their occupation was other than farming and were defined as
part-time farmers. From the Michigan survey we found that part-time farmers had
varying objectives for the small farm. Most liked to live in the country and
commute to their jobs rather than live in the city. The farm was partly a
hobby or a diversion from the employment. Part-time farmers with larger opera-
tions supplemented family income from the farm. They usually were born on the
farm and in many cases were full-time farmers before getting off-farm employment.
While other farmers were expanding in the 1950s and 60s to obtain more family
income, they pursued off-farm employment.
Part-time farmers want to stay small and continue part-time farming.
Approximately one-third said they would like to expand the farm's income, but
few had a plan to achieve farm growth. Only a small number of part-time farmers
were using their present status as a means to shift into full-time farming.
Family income from farm and non-farm sources for part-time farmers was higher
than part-retired farmers or full-time small farmers. Their income was compar-
able to or higher than their city counterparts.
Another large group of small farm operators are part-retired. The 1974
Census of Agriculture shows that 21 percent of the small farm operators are
over 65 years of age. From the Michigan survey we found that most of these
farm operators were previously full-time farmers, but decided to continue
operating their farm in semi-retirement. Since part-retired farmers were usually
small farm operators prior to semi-retirement their earnings were low and conse-
quently their social security payments were minimal. About one-third of the
families had poverty incomes, but considerable capital investments on the farm.
Part-retired farmers were usually disinvesting in agriculture or anticipating
no changes on the farm. One in six was planning on quitting farming in the
next year or two.
Approximately one-third of the farmland in the U.S. is rented land. Al-
though, a farm owner who leases the land to a neighbor is not counted as a farm
operator by the Census, we know from experience and other studies that most
farmland which is leased out is by former farmers or their spouses. They con-
tinue to live on the farm and derive family income from the farm lease.
The last major group of small farm operators are small full-time farmers.
It cannot be determined from the Census material exactly how many of the small
farm operators are younger than 65 and farm full time. If all the part-retired
farmers consider their occupation as farming, approximately 34 percent of the
small farm operators would be full time. From the Michigan survey small full-
time farmers had larger farms, more sales, more capital assets and lower family
income from all sources than other small farm operator categories. Over half
the families had poverty income. The farm operator was older and had made
fewer changes on the farm than the medium and larger farmers. During the 1950s
and 60s when other farmers were expanding or seeking employment off-farm, their
farm business stayed about the same.
Land Use on Small Farms
Analysis of the 1974 Census of Agriculture data shows that only 2.3 of every
ten acres on the average small farm are used for harvested crops, compared with
3.9 and 3.4 of every ten acres on a medium and large farm (Table 6). More of
the total land is also used for cropland pasture and woodland than larger farms.
The most significant difference in small farmland use is the utilization of
cropland (Table 7). Small farm operators devote more cropland to pasture and
less to harvested cropland than their larger counterparts. They have slightly
more idle cropland, crop failure and summer farrow than the larger farm
operators.
If maximum returns are to be obtained from the limited land resources on
the small farm, the land must be used more intensively in harvested crops than
it appears at present. On average quality cropland in the midwest, the return
above direct cash expenses for a corn crop is $130 compared to $25-$30 for
cropland pasture. Small grains and forage crops return almost the same as
corn. A small farm that has a livestock enterprise can support increased pro-
duction and income if the land resource is used for its maximum production
potential.
Land Productivity on Small Farms
There is good evidence that land productivity on small farms is less than
larger farms. Crop yields for major crops are 20 to 30 percent less than
larger farms (Table 8). The productivity of the crop enterprise is highly
associated with the net income obtained from crops or the amount of feed
available for livestock if livestock feed crops are grown. The potential yields
from land resources and the yields obtained should be comparable for crop enter-
prises or farm sizes. Larger farms have no comparative advantages over small
farms in crop productivity.
The maximum crop productivity and net income can be obtained by following
proven technical practices. The following points highlight major practices to
consider in crop management.
1. Knowledge of land quantity and quality are critical factors in planning
for the most profitable land use. There is a wide variation in soils even on
any particular farm. Is the land suited for row crops, small grains, forage or
forest? Land and soil have a number of different characteristics that should
be known. Consider how steep the land is, the erosion hazard, drainage--
natural or tile--soil texture (clay, loam, sand, etc.). For crop production,
know the fertility and acidity level of the soil. The answers to these questions
will determine what production can be obtained from the land.
Land that is almost level, has no erosion problems, is well drained, has
a medium texture, has,good fertility and a soil acidity level of pH 6.4-6.8,
might be good for almost any crop. Select the highest profit crop adapted to
the soils and grow as many acres as will produce high yields. On most mid-
west soils, this crop will be corn and soybeans. Land that has gentle slopes
or suffers from some erosion problems may need cover crops such as oats, wheat,
alfalfa, clover or other grass crops in rotation with the row crops. On such
soils, they will probably produce better and bring as great or greater returns
than either corn or soybeans. Land with steep slopes and severe erosion hazards
may need permanent vegetative cover such as pasture, or may not be usable for
agriculture.
2. The most improvement in productivity can be obtained from technical
practices related to fertility, pest control, varieties and plant population,
It is known that small farm operators use fewer production inputs than their
neighbors. The agriculture chemical expenditures per harvested acre for chemi-
cal fertilizer is 50 percent lower and expenditures on pesticides is 70 percent
lower than large farms (Table 9).
The application of direct production inputs provide the largest rate of
return on an investment than any other expenditures on the farm. For example,
research at Michigan State University has shown the effect of nitrogen fertili-
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zer on corn yield.3 If we assume a $2.50 corn price per bushel, $ .15 nitrogen
price per pound and 100 bushel potential corn ground, the optimum level of
nitrogen per acre is about 120 pounds and a $228 return per acre above the
nitrogen cost. An application of 60 pounds of nitrogen per acre (one-half
the recommended amount) results in 12 percent lower yields and a $21 lower
return per acre. The $9 additional investment in nitrogen fertilizer generates
a $30 additional income from corn sales. Similar or greater rates of return
can be shown for weed control, improved varieties and other direct crop inputs.
3. Land capital improvements in irrigation, tile drainage, land leveling,
removing fence rows and trees, and liming may provide an acceptable rate of
return on the investment depending upon a given situation. Capital budgets
can be developed which will test the economic potential for these changes.
4. Limited resources and cash flow problems can be a serious factor on
small farms especially when crop prices are depressed. There is a tendency by
many managers to restrict production inputs and land capital improvement to
the cash flow obtained from previous year's operation. This can be a serious
financial management mistake depending upon the expected returns for the input
use. Credit is one way to increase available capital if used wisely. Evaluate
how much credit is needed for a particular job, what it will do, where it can
be obtained and what credit will cost and when and how it can be paid back.
5. Numerous other factors such as timeliness of operation, tillage prac-
tices, machinery adjustment and crop storage questions are important contributors
toward obtaining improved productivity and net returns from land.
3M. L. Vitosh, R. E. Lucas and R. J. Black, Effect of Nitrogen Fertilizer
on Corn Yield, Ext. Bul. E-802, Coop. Ext. Serv., Michigan State University,
Feb. 1979.
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Livestock Productivity on Small Farms
The Michigan survey of small farm operations showed lower livestock produc-
tivity than larger farms when milk production per cow, feeder pigs weaned per
litter, beef cow-calf crop and other livestock productivity measures were ana-
lyzed. Small livestock enterprises can be as productive or more productive
than larger enterprises if comparable management practices are applied to the
enterprises.
Many of the comments about expenditures for direct production inputs,
capital improvements and commercial management given for crop enterprises can
be applied to livestock. It pays to keep abreast of livestock breeding,
disease control, feeding and other technical practices appropriate for the
enterprise. Those producers unable or unwilling to adopt approved technical
practices will find it increasingly difficult to remain competitive. Many
state Extension Services and commercial firms have published guidelines to
improve production in livestock. Obtain a copy from local sources.
Application of Technology on Small Farms
Technological change has been one of the major economic driving forces
behind the growth in farm size. Because the adoption of newer technological
methods have been more rapid on larger farms, critics of technology have
assumed all technology is large farm specific and not applicable to small
farms. To some degree, these attacks are based on misunderstandings of agri-
cultural production technology, the adoption process and the application to
various sized units.
Most of the new technology has been devoted to improving plant and animal
productivity. The accomplishments of such research resulted in greater
efficiency and productivity from agriculture. Improved fertilizers, seeds,
pest controls, and cultivation methods have helped to increase crop production
per acre over 60 percent since 1950. Improved breeds, breeding techniques, feeds
and disease controls have increased the quantity and quality of livestock and
livestock products. These products and processes are applicable to the small
farm as well as the larger farms. Enterprise size is not a barrier to its
application.
In cases where specialized machines are needed to apply the products,
small farms may not be able to economically justify ownership, but leasing
services and custom operators are available to provide the small farm operator
with access to the new technology. In some cases, small farm operators have
joined with their neighbor to apply newer products and processes to their farm.
An excellent example of this development is the application of integrated pest
management technical crop protection practices and decision making processes
for managing crop pests. Grower-owned organizations, private consultants and
public institutions are providing integrated pest management services to all
farmers regardless of size.4
Newer technology in the form of mechanization -- machinery and building
system -- has received the most criticism as being only for larger farms. In
many cases, the application on individual farms through complete ownership is
only possible on large farms, But there are other alternatives for small farms
to have access to this technology. Custom operators, usually neighbors, and
leasing services are providing machines and equipment to small farm operators.
In some parts of the country, machinery cooperatives are important. The Produc-
tion Credit Associations and machinery dealers have developed machinery leasing
services in some areas. It is common in the midwest for two or more farmers to
jointly own larger equipment and all use it on their farm.
4Establishing and Operating Grower-Owned Organizations for Integrated Pest
Management, Extension Service, U.S. Department of Agriculture, PA-1180, Mar. 1977.
The application of new technology in buildings and building systems on
small farms is taking place in two ways -- on individual farms and cooperative
ownership. Some mechanization can be applied to small enterprises. Examples
include confinement technology on swine farms by remodeling old facilities
with slatted floors, individual pens, insulation and mechanical ventilation
and bulk milk tanks, pipeline milkers and gutter cleaners on dairy farms.
The most recent application of newer building systems on small farm opera-
tions has been the cooperative production units. Rather than individual farm
operators building a confinement system, they are joining with their neighbors
to own a minority interest in a larger unit. The most recent and significant
development has been the feeder pig cooperatives, although examples can be
found in cattle feeding. Michigan has three feeder pig cooperatives which
are owned by small or medium sized farm operators. Estimates are made that
one-quarter of the feeder pigs in Nebraska are produced in feeder pig coopera-
tives. This ownership pattern has been adopted in varying degrees by other
swine producers in the midwest.
The Evolving Status of Small Farms in U.S. Agriculture
American agriculture is undergoing a changing role for small farms. Families
on small farms in the past depended upon farm income for their livelihood. Now,
off-farm jobs and transfer payments provide income for the family. The small
farm is a place where families can participate in rural life -- as a place to
live and work -- as a place for retirement. Farm activities can supplement
family income in situations where non-farm income sources provide most of the
income. Family members can be involved in the small farm enterprises -- for
5Ralph E. Hepp, Swine Farrowing Cooperatives, Ext. Bul. E-1056, Cooperative
Extension Service, Michigan State University, E. Lansing, Feb. 1977.
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income, a hobby or recreational value. The farm is one resource which is used
by the family to help meet a multitude of objectives for the family.
The small farm as a full-time occupation can provide only minimal levels
of family income. The definition I used for a small farm defines this limita-
tion. Many older farmers who have been farmers all their life and who decided
to remain small, continue to operate the small farm, but their sons and daughters
are not choosing to obtain all their income from the small farm. They have other
alternatives for employment -- off farm.
Some farmers are expanding and specializing in response to technical change
and economic forces. Many of their sons and daughters are entering the farm
business and continuing the family farm tradition. These operations are the
medium and large farms of today.
The remaining farmers operate small businesses. They seek off-farm employ-
ment and use the farm to supplement family income. Because of age, farmers
retire or partially retire from active farming. As farms are sold, neighboring
farmers purchase the land for expansion or people from town move to the country,
continue to work in nonfarm jobs and farm in their spare time.
APPENDIX A
Table 1. Cash Receipts, Net Income and Farms by Sales Classes, 1977
Cash Net
receipts income Farms
- Million Dollars - Thousands
Farm sales classes:
$200,000 and over 35,357 2,637 55
$100,000-199,999 16,867 3,569 107
$40,000-99,999 25,469 6,439 348
$20,000-39,999 11,089 3,208 321
Under $20,000 10,668 4,278 1,875
All farms 99,450 20,131 2,706
Percent
Farm sales classes:
$200,000 and over 35 13 2
$100,000-199,999 17 18 4
$40,000-99,999 26 32 13
$20,000-39,999 11 16 12
Under $20,000 11 21 69
All farms 100 100 100
Before adjustment for inventory change
Source: 1978 Handbook of Agricultural
Charts, Agriculture Handbook No. 551
Table 2. Percent of agricultural products sold by farm size in the north central
states, 1974
Farm Size
State
Small Medium Large
(Percent of products sold)
Wisconsin 42.6 35.6 21.8
Missouri 37.6 30.8 31.6
Ohio 33.6 31.6 34.8
Michigan 32.7 28.2 39.1
South Dakota 30.7 35.3 34.0
Minnesota 29.5 34.5 36.0
North Dakota 28.1 37.3 34.6
Indiana 27.9 31.3 40.8
Illinois 21.4 35.4 43.2
Kansas 20.8 23.9 55.3
Iowa 19.7 36.8 43.5
Nebraska 18.7 27.5 53.8
Source: 1974 Census of Agriculture
Table 3. Percent of acres in major harvested crops by farm size in the U.S., 1974
Farm Size
Crop
Small Medium Large
(Percent of acres)
Total harvested crops 37.6 31.4 31.0
Hay 56.3 26.3 17.4
Wheat 33.9 34.3 31.8
Soybeans 32.2 34.1 32.7
Orchards 29.8 16.6 53.6
Cotton 28.4 24.0 47.6
Corn 21.6 41.3 37.1
Vegetables 17.7 14.8 67.5
Source: 1974 Census of Agriculture
Table 4. Percent of livestock and poultry products sold by farm size in the U.S.,
1974
Livestock and Farm Size
poultry products Small Medium Large
(Percent of products sold)
Sheep and lambs 34.4 19.8 45.8
Hogs and pigs 32.4 33.7 33.9
Cattle and calves 31.8 18.0 50.2
Broilers 5.8 32.8 61.4
Source: 1974 Census of Agriculture
Table 5. Percent of beef and dairy cow inventory by farm size in the U.S., 1974
Farm Size
Type of cows
Small Medium Large
(Percent of cow inventory)
Beef 59.5 21.1 19.4
Dairy 36.3 35.6 28.1
Source: 1974 Census of Agriculture
Table 6. Land use by farm size in the U.S., 1974
Farm Size
Land use
Small Medium Large
(1,000 Acres)
Land in farms 493,573 246,640 276,817
(Percent)
Harvested cropland 23 39 34
Cropland pasture 12 5 3
Other cropland 5 6 5
Woodland 13 5 5
Other land 46 44 53
Source: 1974 Census of Agriculture
Table 7. Cropland use by farm size in the U.S., 1974
Farm Size
Cropland
Small Medium Large
(1,000 Acres)
Total cropland 200,176 123,914 115,949
(Percent)
Harvested cropland 57 77 81
Cropland pasture 30 11 7
Other cropland 13 12 12
Source: 1974 Census of Agriculture
Table 8. Yields of harvested cropland for major crops by farm size in the U.S.,
1974
Farm Size
Crop
Small Medium Large
(Per acre crop yields)
Corn (bu.) 58 72 85
Wheat (bu.) 23 26 32
Soybeans (bu.) 21 24 26
Hay (ton) 1.8 2.2 2.7
Source: 1974 Census of Agriculture
Table 9. Agricultural chemical expenditure per harvested crop acre by farm size
in the U.S., 1974
Agricultural Farm Size
chemical Small Medium Large
(Dollar expenditure per acre)
Chemical fertilizer 11.65 15.56 23.62
Other chemicals (i.e., herbi-
cides, fungicides and
insecticides) 2.99 4.78 10.23
Source: 1974 Census of Agriculture
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