Growing Farm Size and the Distribution 

of Farm Payments 

James MacDonald, Robert Hoppe, and David Banker

Commodity program payments shifted sharply to higher income households between 1989 and

2003. While Congress made important changes to program design in the 1996 and 2002 farm bills,

this shift was not caused by change in design. Instead, changes in payment flows resulted from

structural changes in farming that are driving production to very large family farms. We expect

those structural changes to continue, because larger farms appear to be more profitable and

because many more operators of smaller farms are nearing retirement age. In consequence, in the

absence of any fundamental changes to commodity policy, commodity payments will continue to

shift to higher income households.
2

ECONOMIC BRIEF Growing Farm Size and the Distribution of Farm Payments

UNITED STATES DEPARTMENT OF AGRICULTURE

Agricultural Production Is Shifting to Larger Farms

Family-operated farms continue to account for most U.S. agricultural production. The share of production held by nonfamily farms has grown over time, but still accounted for just 14 percent of the value of

production in 2003 (fig. 1). A more striking shift is toward very large family farms (sales of at least

$500,000, in 2003 dollars), which accounted for nearly half (45 percent) of production in 2003, up from

32 percent in 1989. The number of those very large family farms also grew—from 39,700 in 1989 to

66,700 in 2003. Meanwhile, the share of production on smaller family farms ($10,000-$250,000 in sales)

fell from 40 percent in 1989 to 26 percent in 2003.

The trend to larger farms is sectorwide. The shift to larger livestock operations is well-documented and pronounced. For example, family farms with at least

$500,000 in production value held 61 percent of hog

production and 75 percent of poultry and egg production

in 2003, up from 16 percent and 48 percent in 1989 (fig.

2). But important shifts are also occurring in crop production, where very large family farms hold rapidly growing

shares of production in cash grains and soybeans, tobacco, cotton, and peanuts, crops traditionally covered by

commodity programs and farm legislation.

We assess changes since 1989 because we have accurate

and comparable data on farm production, farm household incomes, and farm payments starting in 1989. But

changes in farm structure were clearly occurring before

that time; the census of agriculture shows ongoing shifts

of production to larger farms in the 1970s and 1980s,

continuing after the dramatic decline of farm numbers

that had occurred between 1935 and 1975 had run its

course. We expect these changes in farm structure to

continue, for two broad reasons.

Many small farm operators are nearing retirement.

Among the principal operators of smaller commercial

farms, those with sales between $10,000 and $250,000, the

share who are age 65 or older has risen sharply since 1989,

suggesting that many are near retirement and not simply

transferring the farm to younger operators. More specifically, over 30 percent of operators in the $10,000-$99,999

sales class were at least 65 years old by 2003, versus 13 percent of the operators of very large family farms.

Larger farms realize higher profits, on average (fig.3).

Margins (the ratio of operating profit1 to gross farm

income) were negative, on average, for farms with sales

below $250,000 in 2003, and they rose steadily as farm

sales increased. The pattern (losses among small farms,

and a strong relation between margins and farm size)

holds in earlier years, and suggests that there are strong

financial pressures driving production toward larger

enterprises.

The trend to larger

farms is sectorwide.

Figure 2

Crop and livestock production is shifting to very large family farms 

(sales of $500,000 or more in 2003$)

Percent of value of production from very large family farms 

Source: USDA, 1989 Farm Costs and Returns Survey and 2003 Agricultural 

Resource Management Survey.

13.3

12.8

20.4

43.9

27.4

48.3

16.2

32.8

26.6

45.3

58.4

43.1

75.2

61.1

0 10 20 30 40 50 60 70 80

Cash grains & soybeans

Tobacco

Peanuts

Cotton

Dairy

Poultry & eggs

Hogs

1989 2003

Figure 1

Agricultural production is shifting to larger farms

2.1

19.5 20.7 19.9

31.6

6.2

1.6

11.3 14.2 14.4

44.7

13.7

0

10

20

30

40

50

Less than 

$10,000

$10,000-

$99,999

$100,000-

$249,999

$250,000-

$499,999

$500,000 

or more

Nonfamily

Farm sales class (2003$)

Percent of value of production 

1989 2003

Source: USDA, 1989 Farm Costs and Returns Survey and 2003 Agricultural 

Resource Management Survey.

Figure 3

Operating profit margin by size of farm, 2003

Less than 

$10,000 $10,000-

$99,999

$100,000-

$249,999

$250,000-

$499,999

$500,000 

or more Nonfamily

Source: USDA, 2003 Agricultural Resource Management Survey.

-98.0

-24.8

-1.8

10.6 16.4 15.3

-120

-100

-80

-60

-40

-20

0

20

40

Farm sales class (2003$)

Percent

1Net farm income plus interest payments, minus the opportunity cost of operators’ unpaid labor and management time.
Growing Farm Size and the Distribution of Farm Payments ECONOMIC BRIEF

3 ECONOMIC RESEARCH SERVICE

Commodity Program Payments Are Shifting to Larger Farms

Federal commodity programs have traditionally provided support to producers of selected commodities, principally grains and oilseeds. With production of “program commodities” shifting to larger

farms, commodity payments are also shifting in that direction, since payments are linked to planting and

yield histories.

Commodity payments include all commodity and disaster assistance payments, and exclude environmental

payments, such as payments received under the Conservation Reserve Program (CRP) or the

Environmental Quality Incentives Program (EQIP). Commodity payments reflect a farm’s production

history for certain commodities. Specific programs have applied to dairy, peanut, and tobacco production, while broader programs have applied to field crops such as barley, corn, cotton, oats, rice, sorghum,

soybeans, and wheat. Payments are tied to the amount of a farm’s cropland that has been enrolled in programs, as well as yield histories. As a result, farms that produce higher volumes of program commodities

generally receive higher payments.

High-value crops, as well as fed cattle, hogs, and poultry, are not supported by traditional government

price and income support programs, although they do receive disaster assistance and occasionally may

benefit from an ad hoc support program. Consequently, farms that produce such commodities receive

substantial commodity payments only if they also produce program commodities or have a history of

producing them. Because production of fed cattle, hogs, poultry, and high-value crops tends to occur on

very large farms, farms in that sales category have traditionally drawn relatively small shares of total commodity payments.

However, as production of traditional program commodity crops shifted to very large farms, commodity payments also shifted sharply (fig. 4). Farms with less than $250,000 in production value (2003$)

received 63 percent of commodity payments in 1989; by 2003, they received 43 percent of payments. But

farms with at least $500,000 of production received 32 percent of all commodity payments in 2003, up

from 13 percent in 1989.

Operators of the Largest Farms Have Higher Incomes

Farm households are not, in general, poor. Mean household income among all U.S. farm operator households was $68,500 in 2003, which compares favorably to the nationwide mean household income of

$59,100 (for more on how household incomes are distributed, see Economic Brief No. 7, Economic WellBeing of Farm Households). Moreover, mean incomes do not vary sharply with farm size among smaller

farms, those with sales below $250,000. Operators of the smallest farms, those with less than $10,000 in

sales, derive almost all of their household income from off-farm work and from unearned income, such as

Social Security, pensions, and

financial investments. About 75

percent of those operators

report negative incomes from

farming, but those losses are offset by enough off-farm income

to raise their household incomes

above the national average.

Households that operate farms

with annual sales up to $250,000

frequently combine a financially

viable farm business with offfarm employment to generate

household incomes that match

or exceed national averages.

Figure 4

Government commodity payments are shifting to larger farms

Less than 

$10,000

$10,000-

$99,999

$100,000-

$249,999

$250,000-

$499,999

$500,000 

or more

Nonfamily

Farm sales class (2003$)

1989 2003

Source: USDA, 1989 Farm Costs and Returns Survey and 2003 Agricultural Resource Management Survey.

2.1

29.4 31.8

23.0

12.7

1.3 1.1

17.1

24.6 22.6

31.8

2.7

0

5

10

15

20

25

30

35

Percent of commodity payments

Data on farms and farm

operator households were

obtained from USDA’s

Agricultural Resource

Management Survey

(ARMS) and its predecessor, the Farms Costs and

Returns Survey (FCRS). The

FCRS first reported comparable data in 1989, so we

used that year as our starting point. Our classification

sorts family farms among

five sales classes, and

assigns all nonfamily farms

to a sixth class. Income

data for all U.S. households

were obtained from the

U.S. Census Bureau’s

Current Population Reports,

Series P-60. We accounted

for changes in farm product prices by converting all

farm sales figures to 2003

dollars, using the Producer

Price Index for Farm

Products, and we converted

all household income figures to 2003 dollars using

the Consumer Price Index

(CPI-U), in order to account

for changes in the purchasing power of incomes.

About the Data
Farm Structure briefing

room, ERS website,

www.ers.usda.gov/Briefing/

FarmStructure/

Carol A. Jones, Hisham ElOsta, and Robert Green.

Economic Well-Being of Farm

Households, U.S. Dept. Agr.,

Econ. Res. Serv., EB-7,

March 2006.

See also . . .

Growing Farm Size and the Distribution of Farm Payments

UNITED STATES DEPARTMENT OF AGRICULTURE

ECONOMIC BRIEF

4

However, operators of very large family farms realize much higher incomes, on average, and as production shifts to those farms, it also shifts to much higher-income farm households. The principal operators of very large family farms reported a mean household income of $214,200 in 2003, well above the

mean across all family farms, and well above the mean of $102,400 reported by principal operators in

the next largest size class ($250,000-$500,000).

Commodity Payments Are Shifting to Higher-Income Households

In 1989, half of commodity payments went to principal operators whose households earned more than

$45,808 (in 2003 dollars), and half went to principal operators whose households had incomes below

that figure (table 1). To further summarize the distribution of payments in 1989, one quarter went to

households earning more than $94,784 (also in 2003 dollars), while 10 percent went to households with

incomes above $189,149.

Since then, payments have shifted sharply to higher-income farm households. By 2003, half of commodity payments went to households with income above $75,772. One quarter went to households earning

more than $160,142, and 10 percent of payments went to households earning more than $342,918.

Because household incomes did not rise sharply with farm sales among operators of farms with less than

$500,000 in sales, shifts in production to larger farms within these size classes did not shift commodity

payments to noticeably higher income households. Rather, the apparent shift in commodity payments to

higher income households is being driven by shifts of production to the largest class of farms (over

$500,000 in sales), whose households have substantially higher incomes.

These shifts have far outpaced the growth in overall U.S. incomes. Between 1989 and 2003, median U.S.

household income grew by just 1 percent, from $42,892 (2003 dollars) to $43,318. The median U.S.

household income in 1989 was near the median of the farm payments distribution ($45,808). This was

not so by 2003.

In the last two decades, incomes have grown most rapidly at the upper levels of the income distribution;

at the 90th percentile (10 percent of households earn more), U.S. income grew by 10 percent between

1989 and 2003. The incomes of households receiving most commodity payments have grown even more

sharply than this. In short, commodity payments are being shifted, through structural change, toward

relatively high-income households.

THE U.S. DEPARTMENT OF AGRICULTURE IS AN EQUAL OPPORTUNITY PROVIDER AND EMPLOYER

For more information, see www.ers.usda.gov/abouters/privacy.htm

Table 1—Commodity Payments Are Shifting to Higher-Income Households

1989-2003

1989 1991 1997 2003 change

Household Income (2003$) Percent

Commodity Payments Distribution

50th percentile (median) 45,808 47,121 55,607 75,772 65.4

75th percentile 94,784 98,657 122,868 160,142 69.0

90th percentile 189,149 196,442 250,092 342,918 81.3

All U.S. Households

50th percentile (median) 42,892 40,686 42,425 43,318 1.0

90th percentile 107,580 103,394 112,589 118,200 9.9

Note: Half of commodity payments go to households with incomes higher than the 50th percentile;

a quarter go to households with incomes higher than the 75th percentile, and a tenth go to households with income higher than the 90th percentile. 

By 2003, half of 

commodity payments

went to households with

income above $75,772.