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Home  »  Special Sections  »  Dairy

Financial risks, technology could undermine family farms

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Carol Ryan Dumas
U.S. cropland is shifting to larger farms raising questions about the future of family farms. Growing financial risks and and new techonology that allows for better monitoring and labor guidance by large, complex agribusiness firms could undermine the family farm model.

As the structure of U.S. farming evolves and more U.S. cropland shifts to larger farms, questions about the implications to family farms arise.

Economists with USDA’s Economic Research Service recently analyzed the forces behind structural changes in U.S. farming and what they might mean for the future of family farming, which still dominates the country’s ag landscape.

In their report, Farm Size and Organization of U.S. Crop Farming, the economists questioned whether larger farms simply represent a size of farm a family can now operate and that more will in the future or do they signal a more fundamental shift toward more corporate, complex and bureaucratically organized farm firms.

Today, 96 percent of U.S. farms with crop production are family farms, representing 87 percent of crop production value. But several factors could undermine the predominance of family farms as an organizational model, the authors stated.

Even though families can manage much larger operations – relying heavily on hired labor, rented land and contracted services – the land and capital equipment requirements may create unacceptable financial risks for many families.

Even if much of the land, equipment and structures are leased or rented, the equity and debt required for the owned assets might be daunting. Even if feasible, most or all of a family’s wealth could be tied up in one risky enterprise, and risks have become more pronounced in recent years, the authors stated.

While commodity and crop insurance and contracting inputs and products offer some insulation, sharp fluctuations in global commodity prices and energy inputs represent unprecedented volatility for many farmers.

As a result, operators of large family farms are likely to explore more complicated ownership and management structures, with non-operator equity and resource providers, the sharing of assets and services among farms, and more contractual relationships with input suppliers and processors.

A second deterrent to large family farms could be created by new technologies that erode the management diseconomies of scale associated with using hired managers and labor, wherein the firm’s owners must closely monitor the decisions made by those hired managers and labors.

“These diseconomies are thought to be particularly acute in agriculture because of the degree of local knowledge of soils, nutrients, pests, and weather patterns required to effectively manage cropping decisions and because sudden changes in weather, pest populations and commodity markets demand quick and informed decisions,” the authors stated.

Such factors have undermined previous attempts to introduce large, complex organizations to U.S. agriculture, but new technology might enable complex nonfamily firms to better compete with family farms in the future.

“Communications, measurement and monitoring capabilities incorporated in farm equipment may allow large, complex firms to acquire the detailed and localized field-level information that was previously available only through persistent personal experience in fields and to effectively monitor and guide decisions made by hired managers and workers,” the authors stated.

Large firms now routinely manage businesses with well over 100,000 acres in South America, Ukraine and Russia. Whether such firms will play a future role in U.S. agriculture will depend largely on developments in technology to overcome the information-gathering, monitoring and decision-making advantages still clearly held by family farms.

Despite the shift of more U.S. cropland to larger farms, U.S. crop agriculture is a long way from being dominated by such extremely large corporate farming businesses, the authors stated.

Farm Size and the Organization of U.S. Crop Farming, by James MacDonald, Penni Korb, and Robert Hoppe:

www.ers.usda.gov



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