About three hours north of the Gulf of Mexico, Louisiana Delta Plantation was the largest U.S. crop farm, working 100,000 acres. But that was only until 2005. Then the farm was broken up and sold.
During a decade of its dizzying climb, Eddie Davis managed up to 34,000 acres for the company. It was easy to buy into the philosophy, Davis now says. Economy of scale means a farm’s cost to produce a bushel of grain should drop as the farm gets bigger.
Partly, that’s from more efficient operations. Partly too, Davis tells Country Guide, that’s because of bulk buying. “When farming operations get to a certain size, they can buy implements more cheaply… sometimes much more cheaply.”
A large farm also seemed to have built-in sustainability that would carry it through times of low grain prices, Davis says. “Even with small profits, across large acres they add up.”
But economies of scale work both ways, Davis says, and it turned out that their Achilles heel was one they hadn’t anticipated. It was human resources, both at the senior and at the field level.
“The ability to find a manager who will manage within their parameters might be a challenge,” Davis says. “It may not be too troubling to go out and find five good employees, but to find 10 good employees may be three times as difficult.”
But there were other issues too. If you expand too much and outgrow your suppliers, you can quickly find yourself in a mess, Davis says. Take an equipment dealer as just one example. A mid-size farm might have a great relationship with a local dealer so they get excellent, fast service. When the farm outgrows the capabilities of the local dealer, however, it either has to invest in its own shop, or start looking for a dealer farther away. So even though you get a volume break on the cost of the equipment, keeping it in the field can introduce all sorts of new costs.
“There are efficiencies of scale, and there are also inefficiencies of scale,” Davis says.
It’s enough, Davis adds, to threaten the sustainability that the large farm was supposed to provide. “When things go right on a very large scale, it can be very good. But when things begin to go wrong on a very large scale, it can begin to be very bad, very quickly.”
Davis now believes many more farmers across the U.S. are approaching a similar tipping point, or rather, a series of tipping points. Things look good now, he says, but as the number of acres goes up, any of these tipping points can very quickly eliminate the benefits of a bigger operation, especially tipping points centred on human resources management.
In fact, there’s already a question about whether the American race to bigger and bigger farms has begun to show the first signs of cooling off.
Despite the popular image of the U.S. as a country where everything about agriculture is supersized, including its farms, most operations there are incredibly small.
It’s a story that’s familiar in Canada, where the squeeze is on mid-size farms. Most U.S. farms are tiny and essentially non-commercial, generating under $1,000 of annual farm sales. The only thing big about these and other small American farms, according to the USDA’s most recent census in 2012, is their number.
Of the more than two million farms in the USDA’s 2012 Census of Agriculture, 55 per cent had under 100 acres each.
Another 30 per cent of farms had between 100 and 500 acres which, depending on region, made them small to mid-size.
Either way, however, the two groups that accounted for a whopping 85 per cent of U.S. farms actually farmed only about 20 per cent of the country’s farmland.
By contrast, farms with more than 2,000 acres represented fewer than four per cent of farms, but they controlled 56 per cent of the farmland.
So although, the average size of a farm in the United States is 434 acres, the overwhelming majority is either much smaller or much larger.
While the number of very small census farms continues to grow, James MacDonald, chief of the USDA’s structure, technology, and productivity branch tells Country Guide that the general trend across the United States continues to be toward larger farms.
“Production has been shifting steadily to larger farms in just about all commodities, and all parts of the country,” MacDonald says. As a result, a small number of farms now accounts for a huge percentage of agricultural production.
In 2012, the top 1.6 per cent of farms accounted for 50 per cent of all sales, and the top 5.7 per cent produced 75 per cent. This is particularly evident in pork and cattle production, MacDonald says. Of more than 900,000 farms with cattle and calves, 42 per cent of sales came from 0.1 per cent of farms, which boasted over 5,000 head per herd.
At the other end of the scale, farms with fewer than 100 cattle made up more than 80 per cent of the total number, but generated just 10 per cent of sales.
Likewise, 4.8 per cent of farms with over 5,000 pigs held 67.7 per cent of all U.S. hogs and generated 65.4 per cent of sales.
In all, small commercial farms with gross incomes under $250,000 accounted for 41 per cent of farm sales in 1982, but then fell to 14 per cent by 2007.
In some regions in the U.S., this is partly due to the land itself, MacDonald says, because it’s simply become easier to farm on a large scale. “In the east, hill country, you really can’t get or put together a field with 150 acres that is all flat so you can run giant pieces of equipment over them,” says MacDonald. “Typically in the high plains, farms are much larger.”
Todd Kuethe is an assistant professor at the University of Illinois and has spent a lot of time studying the USDA census data, which he says is really the best way to get an overall snapshot of farm sizes and the impact of economies of scale. “The most recent census that was released last May, points to something that’s really interesting,” Kuethe says. “We all think of large farms dominating the ag sector generally, which is true, but we’re seeing this bifurcation where you have a lot of small-acreage farms, and also the consolidation of larger farms.”
But when he studies the size of farms and their ownership, Kuethe says he finds there hasn’t been a great structural change over the course of the last 15 to 20 years. “There hasn’t been drastic change in farm size or number of farms,” Kuethe says.
One of the implications is that there’s a significant number of non-farming landowners who are controlling farms in the U.S., who are likely becoming more removed from their agriculture roots.
But there has also been real growth in value-added and niche production.
“These folks who are operating in niche markets, with small farms that are finding ways to target these markets, really seem to be growing,” Kuethe says. Very small farms can also be very profitable. Of farms under 100 acres, four per cent had annual revenue over $100,000, and about one per cent reported over $1 million. Something that’s very high-value on a few acres, like strawberries for example, can be very high in revenue but also low in acreage.
Kuethe says these operations also seem to have staying power. He points, for example, to a herb farm he toured recently, which is demonstrating remarkable earning power on a tiny land base.
“They sold to places like Whole Foods and directly to restaurants,” Kuethe says. But it wasn’t always simple, he adds. “It was very labour intensive, and those plants are way more delicate than soybeans.”
Still, Kuethe sees a good future for operations that are conveniently located close to urban areas, whether selling mushrooms, herbs, or targeted livestock breeds. Small-acreage farms, considered to be less than 10 acres, with sales over $500,000 are most often specialized, single-stage livestock producers, usually operating under contract to a larger company. In 2007, 75 per cent of small-acreage farm sales were in poultry and eggs, hogs and pigs, or greenhouse/nursery and were produced on only 15 per cent of small-acreage farms. Other very lucrative small operations included just 25 shellfish farms with combined sales of more than $36 million and 50 mushroom farms which sold over $147 million of produce.
MacDonald agrees. The future of mega-farms may be uncertain, but the future of mid-size commercial operations seems altogether clear. “Forty years ago, you might have made a living being a corn and soybean guy with 400 acres plus raising some hogs,” MacDonald says. “That’s really what’s shrinking fairly rapidly.”