How Expenses Vary with Farm Size

I've been a bit surprised at the number of comments and questions I continue to receive about this article I wrote for the New York Times almost a year ago.

Here are the opening sentences from the piece:

There is much to like about small, local farms and their influence on what we eat. But if we are to sustainably deal with problems presented by population growth and climate change, we need to look to the farmers who grow a majority of the country’s food and fiber.

Large farmers — who are responsible for 80 percent of the food sales in the United States, though they make up fewer than 8 percent of all farms, according to 2012 data from the Department of Agriculture — are among the most progressive, technologically savvy growers on the planet. Their technology has helped make them far gentler on the environment than at any time in history. And a new wave of innovation makes them more sustainable still.

Common questions I tend to get are "who are these large farms" and "do large farms use more or less fertilizer or chemicals than small farms?"  On the first question, I simply rely on USDA's classification of farms based on gross sales (which is where the above 80% from 8% originates).  The second types of questions are much more difficult to answer as there isn't great data easily accessible on the matter.

However, I recently ran across this USDA, National Agricultural Statistics Service (NASS) publication that reports farm expenses for different sized farms (again, where size is determined by gross sales).  These data are part of the Economic Research Service (ERS), Agricultural Resource Management Survey (ARMS).  Using the 2016 data in this publications, I created the following charts to help provide some perspective on how relatively small, medium, and large farms allocate their spending.

Here are relatively small farms.

The spending of relatively medium-sized farms is illustrated below.

Finally, here are graphics on spending by the largest farms.

A few comments on the comparisons are in order.  First, as indicated by the share of spending on livestock, poultry, and feed, there are different types of farms across size categories, so it's a bit like comparing apples to oranges.  The largest farms are most likely dairies, feedlots, or hog/poultry operations.  The proportion of crop output (as a share of total output) is likely higher for small and medium sized farms.  What we'd like to compare are small crop farms to large crop farms, but that data wasn't easily obtainable.   

The figures show that three categories of spending (as a share of total spending) fall as farms sizes increase: farm improvement and construction, tractors and trucks, and taxes and interest. This relates to some of what I argued in the NYT piece:  

But increased size has advantages, especially better opportunities to invest in new technologies and to benefit from economies of scale. Buying a $400,000 combine that gives farmers detailed information on the variations in crop yield in different parts of the field would never pay on just five acres of land; at 5,000 acres, it is a different story.

On two of the issues which people worry about the most - chemicals and fertilizers - these expenses tend to increase (again, as a share of total expenses) as size goes from small to medium than falls when going from medium to large.  However, some of this change is almost certainly due to the different mix of crops vs. livestock in the different size categories, so it's difficult to draw much of a conclusion from these data.   

Finally, I'll note the small sized categories of farm (less than $10,000 in gross sales) lose money on average.  Why?  Because, by definition, they're  bringing in less than $10,000 in revenue, but they're spending $13,755.  These farms need to generate at least $3,755 in additional annual value per farm to the farm owners, to their patrons, or to their neighbors that isn't reflected in market price for their activities to yield a net benefit to society.