NE OF THE KEY ISSUES in American agriculture today

ONE control production and marketing

agricultural products?" Many are aware of the continuing decline in farm numbers and the increasing concentration of production on larger farms. They are also concerned that these large-scale production units, which are becoming more involved with integrated or contractual arrangements to market their products through industrialized "food systems" conglomerates, may some day approach the concentration of economic power now present in much of our industrial economy.

These developments could point to a future time, perhaps only two or three decades away, when sole proprietorships and the typical family scale farm units as they presently exist will have essentially vanished in the United States. Even so, many smaller part-time or part-income farms would continue to exist.

The concern among farmers and rural people about the changes that are taking place is increasingly evident. Many of the changes are not peculiar to agriculture but follow the patterns of change in the industrialized sectors of the economy. Gradually, science and technology, much of it supplied in prototype form by the land-grant universities and the United States Department of Agriculture, have made it possible for each farm worker to produce more. Output per hour of farm work has more than doubled since 1950. Some of this productivity gain is,

however, rightly attributed to off-farm components of the agricultural industry.

Over time the farming units dominating commercial production have become larger. Even so, only 5 percent of America's farms are large enough to employ more than 18 months of hired labor per year and the family labor input per farm has remained relatively unchanged in the last decade.

An additional complexity of the farming sector is the increasing involvement of farm entrepreneurs with offfarm employment and investment activities. An increasing percentage of the owners of Census Class 31 and smaller farms, or their wives, are engaged in off-farm employment. With modern transportation and communications, it is becoming easier to combine the advantages of living on a small farm with working a 40-hour week in a nearby community. This is particularly true in the industrial areas of the eastern United States. The opportunities for off-farm employment are much fewer in the plains states and the Rocky Mountain areas. The eastern corn belt states are rapidly filling with industrial communities located less than thirty miles from many farm families. At the same time, many of the entrepreneurs of larger, more

'The economic classes of farms defined by the Bureau of Census are: Class 1, sales of $40,000 and over; Class 2, sales of $20,000 to $39,999; Class 3, sales of $10,000 to $19,999; Class 4, sales of $5,000 to $9,999; Class 5, sales of $2,500 to $4,999; Class 6, less than $2,500, part-time, part retirement, and abnormal.

Farming Widely Varied

Perhaps the most accurate attribute of farming is the increasingly divergent nature of the operating business units, among both the more commercial (generally over $20,000 in annual sales) and the numerous smaller, less commercial ones. For example, in 1967 the Internal Revenue Service reported about 3,591 farm units which had over $500,000 in farm business receipts (11). About 1,479 of these were sole proprietorships and the remainder were partnerships. Also, 15,115 of the largest units, grossing over $200,000, averaged $635,000 in sales. At the same time, over one and a half million individuals reporting farm income had farm receipts of under $5,000 and taxable incomes of under $1,000.

The number of tenant-operated farms is decreasing and the number of farms with part-owned and partrented land is increasing. Entry into farming for young farmers is still possible if they are ready to accept a smaller farm and obtain only a part of their income from farming or become tenants, but it is relatively difficult if they try to accumulate the equity to acquire control of a strictly commercial Class 1 unit. Becoming a business partner with a relative is easier for some.

The larger, more successful commercial units are putting serious economic pressure on many of the smaller units, where the operator is trying to remain and, often, to become a "full-time" farmer. Some describe the emerging trends as agrarian cannibalism! The "adapt or die" concept was never more applicable than it is in farming today. Many efficient farms, with sales of over $100,000 annually, are owned and operated by a family unit of two members with up to 18 months of hired labor. Thus the competitive pressure cannot be blamed entirely on large corporate units.

What changes in technology, economic forces, governmental actions, and institutions helped to create the current situation and emerging trends? What actions can be taken to modify or negate the forces now in motion or to create new countervailing forces if this is the desired course of action? A final important question that still defies answering is "What, if anything, does the public want done?" The objective of this publication is to describe the current situation in farming, reflecting on the past and looking to the future, to better understand what is happening to control of agricultural production.

This and similar references are listed at the end of each chapter.

Changes in the Number and Size of Farms

Many of the institutions, traditions, and values relating to the farm sector of our economy were developed before World War II. In 1929, approximately six million farming units were identified by the Census of Agriculture. A high proportion of the production of most farm commodities came from relatively small farms that were owned or operated by a farmer and his family. The main exceptions were some plantations in the South and some large-scale "specialty crop" units in California.

Over time, the farming units dominating production have become larger and more commercial. Not only have production units grown in size, but many have been integrated with other stages of food and fiber marketing. Currently, many very large production units can only be described as industrialized units which bear little resemblance to firms producing the same product 40 years ago. Examples are today's cattle feedlots with over 20,000head capacity or egg factories with one million birds. These units not only are much larger, in terms of production, but also use much more capital and less labor and land than their predecessors.

Note the changes in the concentration of agricultural production in Table 1.1 using data derived from the Census of Agriculture. In 1929, of those farms that were in Census Class 2 or larger, 1.2 percent of about six million census farms produced 14.9 percent of the output (adjusted to 1964 farm prices). However, it took all farms with product sales of $5,000 or more (Census Class 4 and larger) to provide 45.2 percent of the total output. Conversely, units producing under $5,000 of output still provided 54.8 percent of total farm sales. In very sharp contrast, in 1964 only 12.7 percent (those farms with over $20,000 sales) of the 3.16 million census commercial farms produced 64.4 percent of the value of total farm sales. It is estimated that 20.2 percent produced 75 percent of the sales value in 1970. Smaller units, 87.3 percent of the total, produced only 35.6 percent of total output.

The concentration of production on the larger units is not uniform by type of farm or by area. In 1964 largescale units with over $100,000 in sales, produced over 68 percent of the output in the States of California, Arizona, and Florida, while New Mexico and Colorado followed with 39 and 42 percent. In the Midwest and Northeast, large scale units were not so important (Fig. 1).

The size distribution of farms has both a historical background and a relationship to the type of crops and livestock products produced. Even in 1929, 20 percent of the production on vegetable and fruit and nut farms came from units that by current output standards would be in Census Class 1 farms (those with $40,000 or more in sales). But, by 1964, only 3,577 vegetable farms provided 81 percent of the production (Tables 1.2 and 1.3), and about 7,334 units producing other field crops (including potatoes, sugar beets, etc.) had over 74 percent of the output of farms of this type. It is expected that 1969 census data will show further concentration.

The changes that have occurred for different types of farms, as classified by the census, are given in Tables 'Data by type of farm should be available in 1973.

Chapter 1: Kyle, Sundquist, and Guither - -5

1.2 and 1.3. To date, tobacco, dairy, and cash-grain farms have shown less concentration in production. For example, in 1964, 23.9 percent of the total production of cash-grain farms came from Class 1 units. The figure for dairy farms is similar, but it is less for tobacco farms. Although the trend to concentration of production on the larger farms has not progressed as rapidly on cashgrain, dairy, and tobacco farms as it has on most other farms, it has progressed substantially.

A different data series shows the lack of concentration of beef cow-calf operations (5). The average number of beef cows per farm in the United States was 26.3 in 1964. Even though some ranches are large-scale units with over 1,000 cows and it is easy to find herds with over 5,000 cows, the dominant unit is very small. In the eastern half of the country, beef-cow herds average less than 20 cows. These are supplementary enterprises developed to utilize otherwise wasted resources on croplivestock farms or part-time farms.

The concentration in fed beef production is a sharp contrast to beef-calf production. On January 1, 1972, 58 percent of the fed cattle came from only 2,204 feedlots with a capacity of over 1,000 head. The other

168,843 lots fed the remainder. The trend to large feedlots has been very rapid in recent years.

By 1970, the largest 223,000 farms in the United States (those with sales over $40,000) comprised only 7.6 percent of the 2.9 million total but controlled over 52.5 percent of the production of food and fiber (9). If this trend continues, it is conceivable that within two or three decades 70 to 80 percent of total farm production could be concentrated on about 100,000 farms. Of what type and how large will these units be? What will be the capital investment required? How will farm commodities be marketed and prices established? Who will really control these production units? What farming opportunities will remain for the other (perhaps 1,500,000)

less-than-commercial farms? These are questions that are uppermost in the minds of many people, particularly those closely allied with farming.

The Changing Nature of Farm Entrepreneurs

With the drastic decrease in the number of farms that

dominate the major part of agricultural output, it is important to focus attention on who really owns, controls, and manages the larger units. Are they really bona fide, full-time farmers in the commonly accepted sense of 40 years ago?

Data from the Internal Revenue Service for 1966 (Table 1.4) help increase our understanding of the people involved in farming. About 3 million individuals reported farm income in 1966. Not all of these individuals were active farmers and not all farmers reported income. So there is some difference in the populations reported in the census and IRS data. Of those individuals reporting farm income to IRS, 90,000, or 3 percent, have been classed as "affluent." To be so classified, they had to have total taxable income of over $25,000 (for other specifications, see footnote to Table 1.4) (8). These individuals were generally associated with larger farms (averaging almost $45,000 in cash farm receipts). Since less than one-third of this was net farm profit, the taxable farm income was considerably less than their average taxable income from nonfarm sources of $42,000. Half of this group reported income from wages averaging over $20,000 and 56 percent reported dividends averaging almost $15,000. Nearly a third of the group was involved in a nonfarm sole proprietorship or a partnership, and the average income from each of these sources was about $18,500 and $14,500 respectively.

Another 441,000 individuals, or 14 percent, were classed as "well off," usually having taxable incomes from $10,000 to $25,000. They had cash farm receipts averaging $19,240. Their average taxable off-farm income was $9,660, which was also higher than their taxable net farm profits. Perhaps about half of this group could realistically be classed as bona fide, fulltime farmers without significant off-farm income.

The 531,000 individuals represented by these two groups apparently constitute most of the unincorporated entrepreneurs for the U.S. Census Class I and II farms. In 1970 U.S. Department of Agriculture estimated 597,000 Class I and II farms with over $20,000 in sales. Yet, their dependence on farming as a source of income to pay for family living and to retire debts was overshadowed by their income from off-farm sources. In fact, many strategically used their farming operations

Class

Affluent..

Well off.

Chapter 1: Kyle, Sundquist, and Guither -7

Off-farm income

to reduce their income tax liabilities and enhance their accumulation of wealth. Only 39 percent of the "affluent" group and 61 percent of the "well off" group reported farm profits to the Internal Revenue Service. Yet, 87 percent of the 673,000 "poor" individuals with much smaller farm operations reported farm profits.

Thus, Reinsel's reporting of IRS data (Table 1.4) provides a new dimension to the gradual demise of a strictly farming class of rural people. Sixty percent of the total, or more than 1.8 million individuals of uppermiddle and lower-middle affluence reporting farm income in 1966 (groups C and D, Table 1.4), had modest farm operations averaging only about $10,000 and $8,600 in farm receipts respectively. These two groups averaged over $5,000 and $2,000 respectively in taxable income from nonfarm sources. And more than half of

the individuals in these groups had wages from off-farm work that materially contributed to their total adjusted gross income for tax purposes.

In a real sense persons in the C and D groups are classed as farmers because they live on and often operate small noncommercial farms. The 673,000 individuals classed as poor may even more appropriately deserve a farmer classification than the upper-middle and lowermiddle groups. They had very little income from nonfarm sources even though their farming operations were very small and their income was, in most cases, well below the poverty level.

Corporate Farms

Approximately 10,700 of the Census Class 1-4 farm units were estimated to be controlled by corporations in 1967 (2). Though this estimate is rough, it lends some perspective to the total incidence of corporate farms. Some of these, perhaps 2,500, are very large, involve various types of nonfarm business ventures, and cannot

be classed as family units. Though this number is relatively small, it should be remembered that in 1971 only 111 of the largest nonfarm industrial corporations, each with assets over $1 billion, controlled about 51 percent of the assets used in manufacturing in the United States (4).

California's corporate farms warrant special mention because of the large number of units (2). Many of these are vegetable, fruit, nut, and cotton farms. The average acres operated by corporate farms was 3,000 for wholly owned units, about 1,500 for rented operations, and 5,800 for part-owned, part-rented situations. Less than 1,700 farm corporations in 1968 had about 25 percent of total production from California's farms. Among these farm corporations, over 80 percent were involved in no activity except farming. This is a higher percentage than for any other state except Montana.

It is difficult to document the increased involvement of large publicly held corporations in agricultural production, but many believe this is occurring. The legislatures of several states have recently considered laws to restrict the involvement of corporations in agriculture because of intensive concerns of farmers. North Dakota has had a law that prohibits corporations from owning or operating farmland since 1932. However, nationwide no very effective curbs have yet been implemented.

Forward Contracting

and Integrated Production

Some farmers fear the gradual increase of agricultural output marketed through forward contracts or integrated production operations. Others, such as milk producers and sugar beet growers, often do not realize that their output is marketed under a forward contract and may have been for many years. Contract and vertically integrated production increased slightly in the 10 years