Larger Farm, More Efficiency

Larger Farm, More Efficiency

Big operations enjoy higher profit margins 

Economies of size matter when in business, particularly farming, says Bob Hoppe, USDA—Economic Research Service economist. 

Family farms account for 98% of farms, but most farm production (60%) takes place on midsize and large-scale family farms, according to data from the National Agricultural Statistics Service. About half of production is now on farms where the principal operator is more than 55 years old. 

“Farming is still an industry of family businesses,” Hoppe notes. “In the future, we will have more large farms that have an edge with bigger profit margins, and at the other end, you will have very small retirement farms that are insulated from changes in the farm sector. The ones hit hard are the ones in the middle because they are subject to a lot of competition.” 

17% of farms are organized as corporations

8% of these farm corporations have Gross Farm Income greater than $5 million

USDA classifies a large farm as one with $1 million to $4.9 million in gross farm income

One measure of a farm’s profitability is operating profit margin (OPM). A farm is in the “critical zone,” indicating potential financial problems, if operating profits comprise less than 10% of the farm’s gross cash farm income.  A total of 69% of U.S. farms were in the OPM critical zone in 2013, and 87% of them have gross farm income less than $100,000. Many small farms stay in business thanks to off-farm income. 

The number of U.S. farms has declined with increases in productivity, which is defined as farm output based on inputs such as labor and capital. Total acreage has remained fairly steady for years.


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