The Farms Are Too Damn Small: The Small Farm Glut


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Marc BrazeauMarc Brazeau | Editor | Food and Farm Discussion Lab | @eatcookwrite

More Farmers Turn to Off-Farm Income to Keep Their Farms Going

The Wall Street Journal has a story, a familiar story, about the number of farmers needing off-farm income to make ends meet, especially while commodity prices are low. They profile a few farmers about the rising land and input prices that are driving them to take jobs off the farm to make ends meet.

Craig Myhre, a farmer in western Wisconsin, is trying to make a living off 600 acres of crops and a small herd of beef cattle. He also hires himself out to harvest other farmers’ fields, earning money to make payments on his combine.

It’s still tough to make ends meet, despite putting in 12- to 16-hour days. In 2015, he added yet another job, as a mail carrier.

…Most U.S. farm households can’t solely rely on farm income, turning what was once a way of life into a part-time job. On average, 82% of U.S. farm household income is expected to come from off-farm work this year, up from 53% in 1960, according to the U.S. Department of Agriculture.

…“Most farmers are still on their land today because of their off-farm jobs,” said Dan Kowalski, head of research at CoBank , one of the largest U.S. agricultural lenders. “Without these jobs, these farms would be consolidating at a faster rate.”

…Mr. Comstock, 53, who farms 325 acres and raises around 80 cows and calves near Sheridan, Iowa, has worked at Pella for 22 years. He said his paycheck helps his family get by. From time to time he has borrowed money from his company-funded retirement account to help fund livestock purchases and other expenses.

On a recent winter day, Mr. Comstock checked the freight slip for a window shipment bound for New Jersey. He had waked before dawn to chop a hole in a frozen pond so that his cattle could drink. Some days get long, he said, but “I definitely wouldn’t still be in farming if I didn’t have a full-time job.”

… Farmers say their independence and satisfaction from growing a crop keeps them holding down other jobs while working the land. For many farmers who work at Pella, expanding their farms to a size that could provide a complete family income is out of the question. An acre of Iowa’s rich, black soil in the area sells for $4,000 to $8,000, and the state’s average is four times what it was in 2000, according to Iowa State University. Land rental rates in the state have more than doubled in that time.

This is the human side of a story that’s not really a story about low commodity prices. Low commodity prices are only the proximate cause of acute crisis for small and medium sized commodity farmers. This is really a story about the inexorable displacement of labor by technology. But that’s a bit too obvious, a bit too general.

The Farms Are Too Damn Small: The Farmer Glut

Craig Myhre used a skid loader to move feed for his cattle on his farm. – WSJ

What this story is about is the elephant in the room that nobody has wanted to address since Earl Butz tried to offer farmers some friendly advice in ’73: American farms are too damn small. This isn’t a story about low commodity prices, it’s a story about a labor glut. For all the hand-wringing about where the next generation of farmers are going to come from, the fact is, we have more farmers than the market knows what to do with. That’s what increased reliance on off-farm income is telling us. And rising prices for crop land tells us that there is no shortage of the capacity in putting the land to productive use. It may be fewer farmers and more robots, but that land is going to be producing more in the future – at least according to land prices.

What’s driving this?

I would say two things are driving the glut.

The first is that farmers want to farm. Even when they end up on the wrong side of the balance sheet. The guys profiled here are operating very small farms for the markets in which they are operating. They are competing with farms with far greater capital investment, farms that can produce more per acre, more per piece of equipment, and more per farmer. The little guys know their days are numbered, their business doesn’t pencil out any longer in a world where combines keep getting bigger and smarter and a single farmer can manage close to 10,000 acres. Craig Myhre gives away the game when he admits that he’s working a second job to make payments on his combine. Likewise, Tom Comstock has been using his retirement account to pay for livestock. Think about that. Combines and livestock are supposed to pay for themselves and then put money in the farmer’s pocket. This isn’t off-farm income to cover living expenses while the farm treads water through a bad year or two. These guys are working second jobs in order to pay for the privilege of farming.

This isn’t analogous to one of those hapless restaurateurs that Gordon Ramsay goes through the motions of saving for the cameras. Those people own an asset that could produce surplus revenue with decent management. That’s not the case here. If you don’t have enough acres, there’s no tinkering with your business model to squeeze out enough income to support a family.

600 acres. 325 acres. 140 acres. 350 acres.

Mr. Morrow figures he would need to grow crops on 1,000 to 1,500 acres to make ends meet through farming alone. But there’s little land available nearby, and when acres come up for rent, they are typically snatched up by bigger, better-capitalized operations able to pay higher rates. “Right now it doesn’t look very promising to be able to pick up more ground,” he said.

Jacob Bunge the WSJ agriculture reporter and one of the authors of the piece mused on Twitter that small scale farming might be “turning into a labor of love — like the actor who waits tables, or the interior designer who works in event planning.”

But in this case the actor owns the theater where he acts, and the theater can no longer make its mortgage payments.

The Twitter thread he did to accompany the article mirrors much of my reaction to it. In many ways, what he wrote on Twitter was more insightful than the analysis in the piece.

Here’s the crux of the thread, but the whole thing is worth reading.

The logic here is inexorable. The story of agriculture and food production, especially in the U.S. is one of spectacular productivity growth.

Total Factor Productivity Growth in US Agriculture

Whether it’s corn yields driving up productivity per acre …

… or herbicides – allowing a single farmer to manage more acres than they could when weed control meant tillage and then scouting and handpicking weeds – or bigger, smarter combines, not only are we feeding a larger population with the same amount of land, but with fewer and fewer farmers. It’s a common observation to point out that we have gone from 40% of the population involved in agriculture to 2%, as Purdue ag economist Jayson Lusk pointed out in a recent talk, 7.5% of today’s farms, around 159,000, produce 80% of all farm output. Of the other 92.5% of farms, some are producing high value differentiated products for farmer’s markets and CSAs and upscale produce departments, they are doing on-farm processing – making their own cheeses and jams and such. But many are just treading water on borrowed time.

Photo by Mauricio Lima
| Flickr | CC license.

And as drones, GPS, and remote sensors play a bigger role, and self-driving combines come on line, the number of acres that a single farmer or nuclear family can manage is only going to get further and further out of reach for farmers stuck on the wrong side of a tipping point that has moved from 500 acres to 1000 acres or 1500 acres and may be quickly headed toward the 2,500 to 5,000 acre level to provide a decent living for a family. With the newest equipment and tech, one farmer can plant 500 to 750 acres per day, or 5,000 acres in a  one month planting window. Bleeding edge combines can easily harvest 5,000 to 10,000 acres in a typical harvest season. If you are a farmer with 500 acres, you are sitting on what is a single days planting for your competitor. How long can you hang on by working longer and longer hours when your neighbor gets more and more done in a day with every year that goes by, trading in each year for a bigger, better, faster combine?

This problem is generally framed as “How can we help farmers keep farming?”.  And much more of our farm policy is aimed at doing just that, despite the idea that it is tilted towards large operators. I think it would be much more productive to look at policies that help owners of farms on the brink transition out with a lot less pain and heartache. Many of them can and don’t want to; they are sitting on a valuable asset that might not be throwing off the level of income they need, but if they own their land, they’ve got a nest egg to use to transition. That’s easier said than done.

First, farmers are one of the few occupations that if they were truly to retire and sell the land, they immediately pay a tax, upfront, on their full retirement in the form of capital gains taxes. So, farmers hang on to land, renting it out until they die, to spread out the tax burden over the life of their retirement rather than having to pre-pay taxes on their retirement nest egg.

Second, there is a lot of self-identity bound up in farming, it’s very satisfying, gratifying work that isn’t easily matched by any available new jobs, many of these are multi-generational and there is a lot of shame associated with being the farmer who closed the door and shut off the lights on the family’s farm.

But the policy structure we have now, of giving just enough subsidies through risk management and a handful of other programs to keep marginally profitable medium sized farm limping along seems particularly cruel and wasteful to me.

In a different industry, what we’d be seeing is layoffs. Layoffs come with severance packages and unemployment insurance. At the macro level, that’s what rising real estate prices are. They represent the farm economy trying to offer smaller farms an early retirement buyout, a severance package. The problem is, these guys are not ready to be put out to pasture.

Thomas Jefferson and Alexander Hamilton are still playing tug of war with the farm economy

The farm economy is still caught in a tug of war between Thomas Jefferson and Alexander Hamilton
The farm economy is still caught in a tug of war between Thomas Jefferson and Alexander Hamilton

I’ve increasingly come to see the structure of the U.S. farm economy through the debate between Thomas Jefferson and Alexander Hamilton over what kind of economy the United States should have. Hamilton championed industry, national investment in infrastructure, and investment finance. Jefferson was suspicious of banks, opposed a state strong enough to make major investments in infrastructure, and wanted an economy dominated by yeomen farmers rather than a manufacturing export economy. Hamilton won that debate. And for good reason, he understood economics, business, and finance a lot better than Jefferson. Economically, we are living in Hamilton’s America, but U.S. farm policy in many ways represents a Jeffersonian peg jammed in a Hamiltonian hole. Lincoln made Hamiltonian investments to support Jefferson’s yeoman farmers with the Homestead Act, major investments in rail, and the creation of the land grant university system and extension.

In the last fifty years, U.S. farm policy has taken a Hamiltonian turn in its orientation towards exports, but despite an avalanche of trite cliches about how the Farm Bill favors Big Ag, most farm policy is oriented towards Jefferson’s yeoman farmer and the business model of owner operators and family farms. The bulk of subsidies may end up with the biggest farms, but the benefits accrue most impactfully to the medium sized farms at the tipping point of profitability. Believe it not as many or more policies are geared to slow down farm consolidation as hasten it – unpacking that will have to wait for another post.

What I guess I’m trying to get at, is the reason these stories feel like a crisis in a way that having too many screenwriters does not, stems from the fact that the farm economy is perhaps the last area where Jefferson and Hamilton are still at odds, pulling the system in different, dissonant directions, and that’s why we’re a bit lost in responding to farmers who will keep farming after their farm has stopped paying the bills. Our inner Hamilton wonders why they don’t sell the valuable real estate that is bleeding them dry, use that job to support your family, raise your standard of living. Our inner Jefferson is on their side, don’t give up your plot of land, keep planting, growing, harvesting. If you want to farm, keep farming and curses on the damn bean counters.

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