Loss in Number of Farms

A few months ago, the USDA released the results of the 2012 Census of Agriculture.  One of the statistics that seems to have attracted a lot of attention is the finding that there was a 4.3% loss in the number of farms from 2007 to 2012.  More recent discussions have begun to breakdown these numbers by state and even by county within a state.

The loss in the number of farms is seen as a worrying trend my some.  For example, here is North Carolina's agriculture commissioner:

the loss of 2,700 farms is troubling at a time when worldwide demand for food continues to grow. We also know that North Carolina is gaining about 100,000 people a year, which will only increase the pressure on farmland. We clearly have to step up our conservation efforts. It’s a priority I will work on with the General Assembly this year

I'm not so sure whether these changes are worrying.  There are some important things to remember in these discussions.

First, the USDA defines a "farm" as any place from which $1,000 or more of agricultural products were produced and sold.  $1,000 is a very low threshold.  If you sold one cow, you're a farm according to the USDA.  And, what we see is that most of the "lost farms" are those in this very small category.  For example, using the Census data, here is the breakdown of the number of farms in 2007 and 2012 by dollar sales.

The vast majority of the lost "farms", both in absolute and percentage terms, had less than $2,500 in annual sales.  I know many of us have a soft spot for "small farmers", but I would guess there are very few people selling less than $2,500 in agricultural output who are relying on those sales as a main source of income.  Indeed, according to the USDA-ERS, the average off-farm income (see figure 4) of farms with sales less than $1,000 was between $70,000 and $80,000, and most in this category (87.7%) are farming at a loss (i.e., they're paying to farm; the farm loss is a write-off against non-farm income gains). I conjecture that some of the loss of farms in the low sales category might be explained by better off-farm job and income prospects in 2012 than what existed in 2007.

As the table above also shows, there were more farms in the highest sales category.  Much of this likely reflects the fact that many of the farms that, in 2007, were in a lower sales category, were, in 2012, selling more than $500,000 because commodity prices were much higher.  That is, farms didn't get bigger per se, it is simply that the value of the output they were selling rose.  Farms were simply moving up the distribution of sales classification categories.  There are, of course, also changes as a result of an older farm population (which also mirrors an older US population) with people retiring out of agriculture resulting in some farms consolidating.

If the concern about the drop in farm numbers food security (i.e., will we have enough food to eat?), the above table also suggests little cause for alarm.  The data shows that larger farms (those that experienced an increase from 2007 to 2012) account for the vast majority of agricultural output.  In 2006, only 3.9% of farms have more than $500,000 in sales.  But, they accounted for 62.5% of agricultural output value.  A drop in the number of farms does not necessarily imply a drop in the amount of food produced.

Finally, one shouldn't just focus on the "number of farms" but the financial viability of farms.  When we look at profitability of farms, what we see from the Ag Census data is that there was an enormous increases in the value of products sold by farms from 2007 to 2012.  In fact, net farm income was up almost 24% from 2007 to 2012.

All in all, I see little cause for alarm from the Ag Census numbers on the recent change in number of farms.