The U.S. government always has had a knack for manipulating the English language. If you hear the term “revenue enhancements,” you should hold on to your wallet, because a tax increase is inevitable. And if any government official — appointed, elected or otherwise — starts to talk about “transitioning to a world economy,” you can be assured that U.S. jobs soon will be shipped overseas.
One example of our government's clever use of the language is the recent USDA report, “Understanding U.S. Farm Exits,” a much more palatable title than perhaps, “The Disappearing U.S. Farmer,” or “U.S. Farmers: A Vanishing Breed.”
The report explains that the rate at which U.S. farms go out of business, or “exit farming,” is about 9 or 10 percent each year, comparable to exit rates for non-farm small businesses in the United States. The rationale being that small businesses have a high exit rate, and most U.S. farms are small businesses. The report doesn't mention, of course, that while small businesses are important to the economy, most are not feeding and clothing the people of our nation and world.
U.S. farms, contends the report, have not disappeared because the rate of entry into farming is nearly as high as the exit rate. In other words, as many people are giving it a try as are losing their shirts. The relatively stable farm count since the 1970s, says the report, reflects that exits and entries essentially are in balance. The probability of exit is higher for recent entrants than for older, more established farms. Farms operated by African-Americans are more likely to exit than those operated by whites, but the gap between African-American and white exit probabilities has declined substantially since the 1980s. Exit probabilities also differ by specialization, with beef farms less likely to exit than cash grain or hog farms.
According to the report, about 717,100 farms in the United States went out of business — or exited — between 1992 and 1997. But the total number of farms declined by just 13,400 because, “the number of entries (703,700 farms) nearly equaled exits.” In fact, it states, the farm count has remained relatively stable since the 1974 Census, reflecting that exits and entries essentially are in balance.
Understanding farm exits is important for three reasons, says the report. First, knowing which types of farms are most likely to exit might be useful to policymakers interested in the effects of exits on exiting farmers, the remaining farms, and farm communities. Second, exits help reallocate resources between farming and other economic activities and within the farm sector itself. Third, farm exits — and farm entries — play an important role in introducing technologies and productivity growth, as in other industries.
U.S. farm numbers have been relatively stable between agricultural censuses in recent decades, according to the report. But beneath the surface, farming is a much more dynamic industry than the farm count indicates. The relatively small net change in farm numbers masks substantial turnover in farms.
The authors of the USDA report studied two fundamental drivers of farm exits — farm size and operator age. The life cycle of farm operators is important in understanding farm exits because most U.S. farms are fairly small family businesses, and the life of the farm is correlated with the life of the farmer. The correlation is not 100 percent because the farm may continue as a business after an elderly operator leaves. The results show the following:
Exit rates decline as farm size (measured by sales) increases.
Nevertheless, exit rates are still 6 to 7 percent for large farms (sales of $250,000 or more).
The exit rate initially declines with age until it reaches 8 to 9 percent for farmers between 45 and 54 years of age.
The rate then increases and peaks at 12 to 13 percent for farmers who are at least 65 years old.
Exit probability is inversely related to business age. It is substantially higher for recent entries than for older, more established farms.
Exit probability is particularly low for large farms that are at least 14 years old and operated by farmers who are younger than 65. The lower exit probability for these large, well-established farms may help explain the growing concentration of production among fewer farms, particularly if the farms are passed on to other family members and continue in operation.
With farm bill politics in season, you'll likely be hearing a great deal more in coming months about the decreasing numbers of U.S. farmers, including the rationalization that new technologies, etc., mean that none of us should be alarmed that farmer numbers continue to decline over time.
Anyone who has observed agriculture in recent years has noticed several trends, including fewer and fewer young people entering the farming profession, the increasing average age of farmers, and the decimation of rural communities due to declining farm-based economies. The USDA report touches on some of these trends, but the research methodology and statistics tend to obfuscate the human element.