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Rate of Return; Categorizing farms according to size is tough row to hoe

Rate of Return; Categorizing farms according to size is tough row to hoe

It seems simple enough. What is a farm? The U.S. Agriculture Department defines it as “any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the year.” “Very large farms” are defined as having gross sales of more than $500,000.

Sounds straightforward, but the entire picture is a bit more nuanced and far more complicated. Definitions are used for statistical purposes, but often do not adequately define what family farms are. “In fact, almost 95 percent of all U.S. farms are family owned,” said Darren Hudson, director of the Cotton Economics Research Institute at Texas Tech University.

Based on the way the USDA defines big farms, one would think many farmers are raking it in. But if you have $500,000 in sales but $450,000 in expenses and taxes, the farmer’s family would be living on $50,000 per year. Not exactly the payday of a corporate giant.

Under the $1,000 definition of agricultural products used by the USDA, there are 2.1 million farms in a nation made up of nearly 320 million people. Of that total, most are part-time or hobby farmers who don’t raise food commercially. The nation depends on the 210,000 farmers with sales of more than $250,000 to produce 80 percent of the country’s food and fiber.

Hudson said that despite vigorous attempts by the USDA “to try and better categorize farms according to size, income, etc., to counter critiques, problems can still arise. The reality is that people primarily misunderstand the nature of the data,” he said. “For example, a 1,500-acre cotton farm will typically generate over $1 million in sales, thereby being classified as a ‘large’ farm in USDA’s data. But profitability on that is less than a much smaller corn farm. So, sales can be a misleading indicator because it fails to account for variations in costs of production.”

Hudson said one way to do so would be for the USDA to report on items “like rates of return on assets as opposed to just sales (which) would be helpful to put it in perspective with other industries.” Taking that step would help show that farmers have a narrow margin with which to fend off years when natural disasters like withering drought or serious flooding strike. “I think people would be shocked at the long-term rate of return in agriculture compared with other industries,” Hudson said.

Reporting by Rene Pastor – Farm Policy Facts

CONTACT: Darren Hudson, director, Cotton Economics Research Institute, Department of Agricultural and Applied Economics, Texas Tech University, (806) 742-2864 or darren.hudson@ttu.edu

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Editor’s Note: For full text of story, go to http://www.farmers-exchange.net/detailPage.aspx?articleID=12260 or http://www.farmpolicyfacts.org/

 

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