Report to the Chairman, Committee on

Agriculture, Nutrition, and Forestry,

U.S. Senate

United States General Accounting Office

GAO

June 2001 FARM PROGRAMS

Information on

Recipients of Federal

Payments

GAO-01-606
Page i GAO-01-606 Farm Programs

Letter 1

Appendix I Additional Analyses of the Distribution of Farm

Payments 29

Appendix II Scope and Methodology 35

Appendix III GAO Contacts and Staff Acknowledgments 38

Tables

Table 1: Major Farm Program Payments 8

Table 2: Payment Limits for Major Farm Programs 10

Table 3: The Percentage of Major Farm Program Payments

Received by the 12 States Receiving the Largest Amounts,

Crop Year 1999 25

Table 4: Description of ERS’ Farm Typology 32

Table 5: Percentage of Farms and Payments and Average Payments

by ERS’ Farm Typology, 1993 and 1999 33

Figures

Figure 1: Percentage of Farms and Farm Payments by Farm Size,

1999 3

Figure 2: Percentage of Payments Received by Farm Size,

1991-99 4

Figure 3: Percentage of Payments by Farm Operators’ Age, 1991-99 5

Figure 4: Percentage of Farms Receiving Payments by Farm Size,

1991-99 13

Figure 5: Average Farm Payment by Farm Size, 1991-99 14

Figure 6: The Percentage of Farm Payments, Acreage of Eligible

Crops Planted, and the Value of Production of Eligible

Crops, by Farm Size, 1999 15

Figure 7: Percentage of Farm Payments Received by Farm

Operators in Selected Age Categories, 1999 16

Figure 8: Number of Principal Farm Operators Younger than Age

35, 1991-99 17

Contents
Page ii GAO-01-606 Farm Programs

Figure 9: The Percentage of Payments, Farms, and Acreage of

Eligible Crops Planted, by Operators’ Age, 1999 18

Figure 10: Percentage of Farms Receiving Farm Payments by

Operators’ Age, 1999 19

Figure 11: Average Farm Payment in 1999 by Age of the Farms’

Principal Operator 20

Figure 12: Farm Size by Age Group, 1999 21

Figure 13: The Financial Position of Farm Operators of Various Age

Groups, 1999 22

Figure 14: Percentage of Major Farm Program Payments, by Crop,

Crop Year 1999 23

Figure 15: Percentage of Major Farm Program Payments by Crop,

Crop Years 1990-99 24

Figure 16: Percentage of Farm Payments by Farms’ Number of

Farm Acres Operated, 1991-99 30

Figure 17: Percentage of Farm Payments Received by Large and

Small Farms as Defined by the National Commission on

Small Farms, 1991-99 31

Figure 18: Percentage of Farm Commodity Payments Received by

the Top 10 Percent of Recipients 34
Page 1 GAO-01-606 Farm Programs

June 15, 2001

The Honorable Tom Harkin

Chairman, Committee on Agriculture,

 Nutrition, and Forestry

United States Senate

Dear Mr. Chairman:

Payments to farmers under federal farm programs have reached an

historic high—over $20 billion in fiscal year 2000. Nearly one-half of U.S.

farms are receiving payments for income or price support purposes and/or

for engaging in activities such as land conservation. These payments, in

total, made up almost one-half of net farm income in fiscal year 2000.

Although the payments averaged about $17,000 for the farms receiving

them in 1999, the level of assistance can range from a few dollars up to

tens of thousands of dollars. Despite this annual influx of billions of

federal dollars to the farm sector, the U.S. Department of Agriculture

(USDA) reports that the number of farms has been declining about

1 percent per year. According to the census of agriculture, which is

conducted every 5 years, the nation had about 1.9 million farms in 1997,

down from 2.1 million farms in 1987. This decline, which has occurred

partly as a result of consolidation, is most pronounced among small family

farms. Moreover, the average age of farm operators continues to increase.

For example, the share of farmers under age 35 decreased from 15 percent

in 1954 to 8 percent in 1997, while the share of farmers age 55 or older

increased from 37 percent to 61 percent.

Concerned that farm payments are not being effectively targeted to aid the

survival of small farms and the entry of young people into agriculture, you

asked us to (1) determine the distribution of farm payments over the past

decade by farm size, operators’ age, state, and crop and (2) identify the

major barriers that make it difficult for young people to enter farming.

The following information on the distribution of farm payments by farm

size and operators’ age is from our analysis of USDA’s annual surveys of

U.S. farm operations. These surveys—called the Agricultural Resource

Management Study—include information on crop and livestock

production practices and the financial and operating characteristics of

farms. The information on payments by crop and state is from USDA’s

Program Payments Reporting System, a national database of payments

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-01-606 Farm Programs

made under the Department’s farm programs. (See app. II for a more

detailed discussion of the annual surveys and the payments database.)

In recent years, over 80 percent of farm payments have been made to

large- and medium-size farms, while small farms have received less than

20 percent of the payments. For example, in 1999 (the latest year for which

data were available), large farms—the 7 percent of farms nationwide with

gross agricultural sales of $250,000 or more—received about 45 percent of

the payments. The 17 percent of farms that are medium-sized (gross sales

between $50,000 and $249,999) received 41 percent of the payments. The

remaining 14 percent of the payments was shared by the 76 percent of

farms that are small (gross sales under $50,000). (See fig. 1.) Small farms

substantially outnumber medium and large farms, but because payments

are generally based on volume of production, the average payment of

small farms that received payments was much less. In 1999, these small

farms, on average, received payments of about $4,141. In contrast, large

farms received payments averaging about $64,737, while medium-sized

farms received average payments of about $21,943.

Results in Brief
Page 3 GAO-01-606 Farm Programs

Figure 1: Percentage of Farms and Farm Payments by Farm Size, 1999

This distribution pattern for 1999 was similar to that of the other years

over the past decade. However, the portion of the payments that has gone

to large farms has increased and the portion to small farms has decreased

during the period since 1996 (see fig. 2).
Page 4 GAO-01-606 Farm Programs

Figure 2: Percentage of Payments Received by Farm Size, 1991-99

In 1999, farmers under age 35 operated about 6 percent of the farms

nationwide and received about 6 percent of farm payments. Those who

were ages 35 through 54 operated 46 percent of the farms and received

56 percent of the payments; those ages 55 or older operated the remaining

49 percent of the farms and received the remaining 38 percent of the

payments. This pattern was generally consistent over the 9-year period of

1991 through 1999. The percentage of the payments received by farmers

under age 35 was fairly constant over the past 3 years, although lower than

during the first part of the period. (See fig. 3.) At least some of this

decrease can be attributed to the aging of the recipients and the reduced

number of younger farmers. Of the farmers receiving payments, the

average payment in 1999 of those under age 35 was about $16,544, slightly

less than the $16,751 average for those of all ages.
Page 5 GAO-01-606 Farm Programs

Figure 3: Percentage of Payments by Farm Operators’ Age, 1991-99

Farm payments are principally directed at producers of eight major crops:

wheat, corn, barley, oats, sorghum, rice, cotton, and oilseeds (primarily

soybeans). In 1999, corn and wheat accounted for about 64 percent of

commodity payments. All states received a portion of these payments.

However, six states—Iowa, Illinois, Texas, Kansas, Nebraska, and

Minnesota—together received almost half of the payments in 1999.

As the above suggests, large wheat and corn farms run by older operators

tend to receive larger farm payments. These farms receive more primarily

because most of the major farm programs’ payments are based on historic

or current levels of production of the eight crops and, among these crops,

corn and wheat have been grown in the greatest quantities. Similarly, the

payments are concentrated in the relatively few states due to the fact that

the eligible crops have been grown in greater abundance in these areas.

Finally, older farmers tend to receive the largest portion of the payments

because they are the largest demographic group and operate more of the

larger farms. For example, in 1999, about 94,000 farmers between the ages

of 35 and 54 had farms with at least 1,000 acres. In contrast, only about

9,000 farmers under the age of 35 had farms of this size.
Page 6 GAO-01-606 Farm Programs

The major obstacle facing young people who wish to enter farming is the

high cost of acquiring the needed assets, principally farmland and farm

machinery. Although farm program payments can help beginning farmers

once they have started farming, the payments can also present a hurdle

because their value is reflected in a higher price to buy or lease the

farmland. According to USDA, generally only established farmers are able

to acquire farmland that becomes available when farmers retire and sell

their land. USDA and many states have programs specifically designed to

help those wishing to enter farming. For example, USDA has loan

programs to assist beginning farmers to buy land and other assets and to

pay operating expenses. Nonetheless, the number of young farmers

continues to decline. Some fear that this decline will adversely affect the

nation’s food security and the economic well-being of rural communities.

However, USDA maintains that the changing makeup of the farm sector

will not have a severe effect on the nation’s food supply or rural

economies because overall production levels are not dropping and rural

communities are now less financially dependent on agriculture than in the

past.

We provided USDA’s Farm Service Agency and Economic Research

Service with a draft of this report for review and comment. The Farm

Service Agency and the Economic Research Service generally agreed with

the information presented in the draft and provided some technical and

clarifying comments, which we have incorporated as appropriate.

Federal assistance to farmers have been at the heart of federal farm policy

since the early 1930s, when the Congress passed the Agricultural

Adjustment Act of 1933 as one of the first pieces of New Deal legislation.

This assistance began as a means to address the “farm problem,” low and

uncertain farm prices and incomes in farm and rural communities. Since

then, the Congress has frequently modified or created new farm price and

income support mechanisms in response to changing conditions in the

farm sector, federal budgetary pressures, and shifts in policy goals.

However, the payments’ purpose remains essentially the same today, and

many of the program features established in the 1930s and 1940s have

been retained.

The most recent farm bill—the Federal Agriculture Improvement and

Reform Act of 1996 (the 1996 farm bill)—substantially revised some farm

Background
Page 7 GAO-01-606 Farm Programs

payment provisions while retaining others. This legislation, which covers

fiscal years 1996 through 2002, created production flexibility contract

payments1

 to shift toward a more market-oriented farm policy and away

from farm income support tied to crop prices and specific planting

requirements. Under the 1990 farm bill2

 and others dating back to 1973,

USDA made payments to wheat, feed grain (corn, oats, barley, and

sorghum), cotton, and rice producers when average market prices for

these commodities fell below the target price set by law for each

commodity. These “deficiency” payments were based on a farm’s program

yield for a particular commodity multiplied by its number of eligible acres

times the commodity’s payment rate. Whereas total federal spending on

deficiency payments increased when farm prices went down and

decreased when prices went up, the total amount of production flexibility

contract payments for each fiscal year was fixed at generally declining

levels from $5.570 billion for 1996 to $4.008 billion for 2002. In return,

producers could continue to receive payments as they did under the old

program (using the same eligible acreage and crop yields) but have greater

planting flexibility.

In addition to creating production flexibility contract payments, the 1996

farm bill continued several other programs wherein USDA also makes

payments to farmers. The marketing assistance loan program is aimed at

helping producers with the orderly marketing of their crops. In essence, its

provisions effectively guarantee a minimum price or return for the

commodities. The 1996 farm bill also continued several programs whose

primary purpose is aimed at resource conservation and environmental

protection. For example, under the Conservation Reserve Program—the

largest of these programs—USDA pays producers to take certain land out

of production. Since the 1996 farm bill was enacted, the Congress has also

provided substantial emergency assistance in the form of “market loss

assistance” payments to help farmers deal with continuing low crop prices

and disaster payments for specific natural disasters, such as droughts and

floods. (See table 1 for a brief description of and the dollar amount of the

major types of payments made under farm programs over the past

3 years.)

 1

 These payments are also known as AMTA payments in reference to the Agricultural

Market Transition Act, which is title I of the 1996 farm bill and the section that established

production flexibility contracts.

2

 Food, Agriculture, Conservation, and Trade Act of 1990 (P.L. 101-624).
Page 8 GAO-01-606 Farm Programs

Table 1: Major Farm Program Payments

Dollars in billions

Payment type Description FY 1998 FY 1999 FY 2000

Production

flexibility

contract

Producers who, at the time of the 1996 farm bill, had

participated in previous farm price and income support

programs for wheat, corn, sorghum, barley, oats, rice, and

upland cotton could enter into contracts to continue to receive

payments. USDA calculates the payments based on the

producers’ eligible acreage and yields established for these

crops under the previous programs. The amount of these

payments was set at a fixed and generally declining level for

fiscal years 1996 through 2002. Each crop was assigned a

certain share of each fiscal year’s payments. For example,

corn’s and wheat’s shares were 46.22 percent and 26.26

percent, respectively. Unlike the earlier programs, producers

could plant any crop that they wanted to on these acres, with

limitations on growing fruits and vegetables and for compliance

with conservation requirements.

$5.7 $5.5 $5.1

Marketing loan

gain/loan

deficiency

Soybean, other oilseed, and extra long staple cotton producers

and producers of wheat, corn, sorghum, barley, oats, rice, and

upland cotton who have a production flexibility contract for at

least one of these crops can take out marketing assistance

loans. (For crop year 2000, the Congress suspended the

requirement for producers to have a production flexibility

contract to be eligible for the program.) These loans provide

short-term financing to help farmers pay their bills after harvest

and spread crop sales over the entire marketing year, when

prices may be higher. A producer pledges the crop as collateral

and receives a loan based on the crop amount multiplied by a

loan rate for each unit of eligible production. Producers can

repay the loan’s principal and interest within the loan period

(usually 9 months), or they can forfeit the crop to the

government when the loan matures and keep the loan principal

as payment. Producers of these crops (except for long staple

cotton) also have the option to repay the loans at the posted

county price—a USDA estimate of the local market price (for

cotton and rice, USDA uses the adjusted world price)—and sell

the crop on the market. The difference between the loan rate

and the posted county price is a marketing loan gain and is

considered a cash payment to the producer.

To reduce the paperwork and administrative burden of

producers taking out marketing assistance loans and repaying

them the same day to obtain the market gain, producers can

request loan deficiency payments. The rate for these payments

is the amount by which the loan rate exceeds the posted county

price on the day the request for payment is made. This rate

provides an amount equal to the rate available for a marketing

loan gain on the same day.

$0.6 $4.4 $8.1

Market loss

assistance

Because of continuing low crop prices, the Congress has, since

October 1998, supplemented production flexibility contract

payments with emergency payments. The payments have been

made using the same formula for distributing production

flexibility contracts payments.

$3.0 $11.1
Page 9 GAO-01-606 Farm Programs

Dollars in billions

Payment type Description FY 1998 FY 1999 FY 2000

Crop disaster The Congress has periodically passed legislation to provide

emergency payments to producers with major crop losses due

to natural disasters and disease. These payments have been

for various crops as specified in the applicable appropriation

acts.

$1.9 $1.3

Conservation

Reserve

Program rental

Farmers can voluntarily enter into 10- to 15-year contracts with

USDA to take highly erodible and environmentally sensitive

farmland out of production. The farmers receive an annual

per-acre rental payment for the term of the contract. (USDA will

also pay up to half of the cost to plant these lands in grass,

trees, or other approved vegetation.)

$1.3 $1.3 $1.3

Total $7.6 $16.1 $26.9

Although production flexibility contract payments have been declining

since 1996, other assistance has increased farm payments to their highest

levels ever. For example, when the 1996 farm bill was passed—and crop

prices were high—it was anticipated that marketing assistance loans

would facilitate the orderly marketing of farm commodities at little or no

cost to the federal government. However, persistent low prices over the

past several years have turned the marketing assistance loan program into

a major vehicle for farm income support payments. In addition to these

payments, the Congress has also provided substantial emergency

funding—especially for market loss payments—to help address low prices.

As a result, all these payments are playing an increasingly critical role in

supporting farmers, as evidenced by the fact that, in fiscal year 2000, the

payments accounted for almost half of net farm income.

The 1996 farm bill, as did earlier legislation, generally limits the maximum

amount of payments that a “person” can receive in a given year under the

farm programs.3

 (Various appropriations acts have also included certain

payment limits.) Persons for payment limitation purposes may be various

things, including an individual, a limited liability partnership or company, a

member of a joint operation; a corporation, or a participant in a joint

venture. More than one individual may receive payments for a farming

operation. However, no individual may receive payments for more than

 3

 The payment limitation may be on a fiscal year, crop year, or program year basis,

depending on the program.
Page 10 GAO-01-606 Farm Programs

three entities (partnerships, corporations, etc.) in which he/she holds

substantial beneficial interest.4

 (See table 2.)

Table 2: Payment Limits for Major Farm Programs

Type of payment Payment limitation

Production flexibility contract $40,000 per person. A total of $80,000 per person

for up to 3 entities ($40,000 for the first entity,

$20,000 for each of the other two entities).

Marketing loan gain/loan deficiency Usually $75,000 per person and $150,000 in total

for up to 3 entities. For 1999 and 2000, the

Congress raised the limit to $150,000 per person,

with a total limit of $300,000 for no more than 3

entities.

Market loss assistance Because these payments were supplemental to

production flexibility contract payments, their

payment limitation was essentially the same. The

limitation was adjusted to reflect differences in the

amounts of the two types of payments.

Crop disaster $80,000 per person.

Conservation Reserve Program $50,000 per person.

The large amount of marketing loan gains and loan deficiency payments in

1999 had put many large and even mid-sized farms up against the $75,000

limit for the program’s benefits. When farmers reach the payment limit,

they can put the remaining crop under loan and forfeit the stored

commodities to settle the loan. Concerned about the federal government’s

expense associated with storing and disposing of forfeited commodities,

the Congress doubled the payment limit for the 1999 crop. In addition, in

February 2000, the Secretary of Agriculture implemented a statutorily

authorized commodity certificate program that was also intended to

discourage forfeitures, in this case by effectively eliminating payment

limits. Under the program, farmers may purchase certificates at the posted

county price for up to the quantity of grain or cotton under loan, and then

immediately trade the certificates to recover commodities under loan,

which can then be sold on the market. The Congress increased the

payment limitation again for the 2000 crop, reducing the need for farmers

to use certificates.

 4

 If an individual owns 10 percent or more of a corporation or other entity receiving

payments, the payment for the individual’s interest will not be paid to the entity unless the

individual designates the entity as one of the three for which he/she will receive payments.
Page 11 GAO-01-606 Farm Programs

USDA also provides considerable other financial assistance to farmers in

the form of loans and crop insurance. The Department makes various

types of direct and guaranteed loans. Farm ownership loans are available

for buying farm real estate and making capital improvements. Farm

operating loans are available for purposes such as buying feed, seed,

fertilizer, livestock, and farm equipment; paying family living expenses;

and, subject to certain restrictions, refinancing existing debt. For fiscal

year 2000, USDA was authorized over $5 billion for these loans. Its losses

on these loans during fiscal year 2000 totaled about $486 million. USDA

also subsidizes farmers’ purchase of insurance to protect against crop

losses caused by perils such as drought, floods, and other natural

disasters. Premium rates and costs to the government are determined

largely by the program’s loss experience. Generally, the higher the crop

losses, the higher the premiums in future years. From 1981 through 1998,

USDA paid farmers $14.1 billion for insured crop losses, which was partly

offset by the premiums that farmers paid.

Because farm payments have generally been based on the production of

major crops or commodities, larger farming operations generally have

received larger payments than smaller ones. Similarly, older, more

established or experienced farm operators have generally received larger

payments than younger, less experienced ones. Operators under age 35

received slightly smaller payments than the average for operators of all

ages and several thousand dollars less than operators ages 35 through 54.

Although the younger, less experienced operators were spread across all

sizes of farms, on average, they had somewhat smaller farms and

produced somewhat less of the crops for which payments are generally

made. Producers of wheat, feed grains, rice, cotton, and oilseeds have

received most of the farm payments because the payments are generally

based on the production of these crops. In addition, the bulk of the

payments have gone to a relatively small number of states where the

production of these crops has been greater. See appendix I for a more

detailed discussion on defining farm size and additional analyses of the

distribution of farm payments by (1) the number of farm acres operated,

(2) the definition of small farms recommended by the National

Commission on Small Farms, which was established by the Secretary of

Agriculture in 1997 to examine the status of the nation’s small farms, (3) a

new typology developed by USDA’s Economic Research Service that is

based on a combination of gross agricultural sales and the occupation of

the farm’s principal operator, and (4) individual recipients or payees rather

than farming operation. These other analyses produce similar results.

Smaller, Less

Established Farms

Generally Receive

Smaller Payments
Page 12 GAO-01-606 Farm Programs

Smaller farms have consistently received smaller payments than have

larger ones, and this gap has widened. Although small farms (those with

less than $50,000 in gross agricultural sales) made up about 76 percent of

the farms nationwide in 1999, they received about 14 percent of the

payments. Their portion of the payments has fluctuated over the 9-year

period of 1991 through 1999, increasing from 23 percent in 1991 to a high

of 29 percent in 1995 and then generally starting to decline in 1996 to the

low of 14 percent in 1999. In contrast, large farms (those with gross

agricultural sales of $250,000 or more) made up about 7 percent of the

farms, they received about 45 percent of the payments in 1999. Their share

of the payments has also fluctuated but generally increased over the 9-year

period, especially since 1996. They received from 28 to 32 percent of the

payments in the years from 1991 through 1995 and from 35 to 47 percent in

the years from 1996 through 1999.

Small farms have collectively received a relatively small portion of farm

payments for two principal reasons. First, a smaller percentage of them

has received payments. Second, small farms—by generally producing less

of the crops on which the payments are based—have received payments

that on average are smaller than those received by larger farms.

In 1999, about 31 percent of the small farms received payments, while over

70 percent of the large and medium farms did. The percentage of the farms

receiving payments in all three of these size categories has increased since

1991, when about 60 percent of the large and medium farms and about

22 percent of the small farms received payments. (See fig. 4.) Economic

Research Service officials told us that a smaller portion of small farms

produce commodities eligible for payments, which helps explain these

differences in program participation. For example, beef is not one of the

commodities for which farm payments are generally made. According to

the Economic Research Service officials, beef is the primary commodity of

about 40 percent of small farms, compared to 20 percent of medium farms

and 10 percent of large ones.

Smaller Farms Have

Consistently Received

Smaller Payments
Page 13 GAO-01-606 Farm Programs

Figure 4: Percentage of Farms Receiving Payments by Farm Size, 1991-99

Average payments remained fairly constant in size over the period of 1991

through 1999, except for 3 years—1993, 1998, and 1999—when total

payments increased substantially. In these 3 years, the average payment

ranged from $39,167 to $64,737 for large farms and from $14,039 to $21,943

for medium farms. In contrast, small farms’ average payment in these

years ranged from $3,778 to $5,068, about the same as for the years of

lower total payments. In the other 6 years, the average payment ranged

from $22,683 to $26,540 for large farms, from $9,037 to $11,240 for medium

farms, and from $3,776 to $5,067 for small farms. (See fig. 5.)
Page 14 GAO-01-606 Farm Programs

Figure 5: Average Farm Payment by Farm Size, 1991-99

Farms that produce more of the crops eligible under the farm programs

generally have received larger farm payments. For example in 1999, large

farms received 45 percent of the payments, while accounting for

46 percent of the planted acreage and 52 percent of the value of

production of the eligible crops.5

 Small farms received 14 percent of the

payments and accounted for 10 percent of planted acreage and 8 percent

of the value of production. (See fig. 6.)

 5

 These data on the planted acreage and value of production of eligible crops, which are

from the Agricultural Resource Management Study, do not include minor oilseeds, such as

mustard seed and canola. These crops accounted for less than 1 percent of farm payments

in 1999.
Page 15 GAO-01-606 Farm Programs

Figure 6: The Percentage of Farm Payments, Acreage of Eligible Crops Planted, and

the Value of Production of Eligible Crops, by Farm Size, 1999

Collectively, farm operators under 35 years of age have received a small

and declining share of farm payments, principally because the number of

young operators receiving payments has been small and declining.

Nonetheless, the percentage of the payments they received in 1999 was

about the same as the percentage of the nation’s farms they operated and

their percentage of the acreage planted in the crops eligible for payments.

In addition, in 1999, they operated farms of all sizes—similarly to other age

groups—and a higher percentage of them received payments. Their

average payment of about $16,544 in 1999 was about the same as the

average for all farms and higher than the average of $12,973 for operators

that were 55 or older.

In 1999, operators under age 35 received about 6 percent of the farm

payments compared to 56 percent for operators that were 35 to 54 years

old and 38 percent for those who were 55 or older. (See fig. 7.)

As a Group, Young

Operators Have Received a

Smaller Portion of Farm

Payments
Page 16 GAO-01-606 Farm Programs

Figure 7: Percentage of Farm Payments Received by Farm Operators in Selected

Age Categories, 1999

As shown in figure 3, the percentage of farm payments that has gone to

operators under age 35 has generally declined over the period of 1991

through 1999. At the same time, the percentage to those 35 through 54

years of age generally increased, while the percentage to those ages 55 or

older has generally stayed about the same. For example, operators

younger than 35 were receiving about 10 percent of the farm payments in

the years 1991 through 1993. The percentage then decreased to 6 in 1999.

The number of farms whose principal operator is under age 35 has

decreased substantially over the last decade. In 1991, about 9 percent, or

197,151, of the operators were younger than 35.6

 The number of young

principal operators declined to 120,612, or about 6 percent, in 1999. (See

fig. 8.) In comparison, the number of principal operators who were 55 or

older increased from 993,810, or 47 percent, in 1991 to 1,063,233, or about

49 percent, in 1999.

 6

 These data somewhat understate the number of young farmers. The Agricultural Resource

Management Study survey data are for farms’ principal operators. Other operators, such as

a son working for a father, are likely on some of the farms.
Page 17 GAO-01-606 Farm Programs

Figure 8: Number of Principal Farm Operators Younger Than Age 35, 1991-99

Young operators’ percentage of farm payments in 1999 was about the same

as their percentage of the farms operated and of the acreage of the eligible

crops planted (see fig. 9).
Page 18 GAO-01-606 Farm Programs

Figure 9: The Percentage of Payments, Farms, and Acreage of Eligible Crops

Planted, by Operators’ Age, 1999

In 1999, 46 percent of the operators under 35 years old received farm

payments. This percentage was greater than that of the other age

categories. (See fig. 10.) It was also higher than in previous years. During

the period of 1991 through 1999, the percentage of young farmers

receiving payments was in the 30s each year, except for 27 percent in 1994,

29 percent in 1996, 42 percent in 1993, and the 46 percent in 1999.
Page 19 GAO-01-606 Farm Programs

Figure 10: Percentage of Farms Receiving Farm Payments by Operators’ Age, 1999

The average payment made in 1999 to farms whose principal operator was

less than 35 years old was about $16,544, a little less than the average of

$16,751 for all farms receiving payments. Their average payment was also

several thousand dollars less than the average of $20,898 for those that

were age 35 to 54 but more than the average of $12,973 for those 55 or

older. (See fig. 11.)
Page 20 GAO-01-606 Farm Programs

Figure 11: Average Farm Payment in 1999 by Age of the Farms’ Principal Operator

In 1999, young farmers operated farms of all sizes, just like older farmers.

For example, operators age 25 to 34 had a percentage of the largest farms

equal to or greater than other age groups and a lesser percentage than

other age groups of the smallest farms. (See fig. 12.)
Page 21 GAO-01-606 Farm Programs

Figure 12: Farm Size by Age Group, 1999

Note: Data were insufficient to provide similar information on operators younger than age 25. The

random sample used for the Agricultural Resource Management Study survey did not include a

sufficient number of these operators to make these estimates. Available data indicates that there are

only about 10,000 farmers in this age category, less than 1 percent of all operators.

For the most part, farmers under age 35 appear to be in a financial position

similar to other farmers. For example, according to USDA, about

43 percent of operators from age 25 to 34 were on farms in a favorable

financial position, similar to the percentage for other age groups. The

percentage of their farms considered to be in a vulnerable financial

position was relatively small at 10 percent, although more than twice the

average for all farms. (See fig. 13.)
Page 22 GAO-01-606 Farm Programs

Figure 13: The Financial Position of Farm Operators of Various Age Groups, 1999

Favorable: These farms have a debt-to-asset ratio of no more than 0.40 and a positive net farm

income. They are generally considered financially stable.

Marginal income: These farms’ debt-to-asset ratio is no more than 0.40, but they have negative net

farm income. Periods of negative income may not pose financial difficulties if the farm is carrying a

low debt load and can either borrow against equity or obtain income from off-farm sources.

Marginal solvency: These farms have a debt-to-asset ratio greater than 0.40 and positive net farm

income. A high debt to asset ratio may be acceptable if the farm can generate enough income to

service its debt and meet other financial obligations.

Vulnerable: These farms’ debt-to-asset ratio is greater than 0.40 and they have a negative net farm

income. They are generally considered financially unstable.

For the 1999 crop year, two crops—corn and wheat—accounted for about

64 percent of the payments under the farm commodity programs. Five

crops—corn, wheat, oilseeds (primarily soybeans), cotton, and rice—

accounted for almost 93 percent of the payments. (Collectively, these five

crops constitute about two-thirds of the value of U.S. production of field

and miscellaneous crops and over half of the value of production of all

crops, including fruits, nuts, and vegetables.) These payments were made

for production flexibility contracts, marketing loan assistance, market

Most Payments Are Made

for a Small Number of

Crops and to Producers in

a Few States
Page 23 GAO-01-606 Farm Programs

loss, and disaster assistance. As previously discussed, producers with

production flexibility contracts do not have to grow the eligible crops to

receive payments for them. (See fig. 14.)

Figure 14: Percentage of Major Farm Program Payments, by Crop, Crop Year 1999

The percentage of the payments that have been made for the different

crops has varied from year to year. Nonetheless, the crops receiving the

most payments in 1999 have generally received the most payments over

the decade. For example, the payments for corn have fluctuated from a

low of about 22 percent in 1993 to a high of 54 percent in 1997 but more

often the percentage has been in the 40s. Similarly, wheat has ranged from

about 17 percent in 1992 to about 37 percent in 1996 but has generally

been in the 20s. The major exception has been oilseeds—primarily

soybeans—which accounted for very little, if any, of the payments in the

years until 1998 and 1999. Oilseeds’ eligibility for payments is generally

limited to marketing loan gains and loan deficiency payments. These two
Page 24 GAO-01-606 Farm Programs

types of payments increased substantially in 1998 and 1999 because of low

farm prices. (See fig. 15.)

Figure 15: Percentage of Major Farm Program Payments by Crop, Crop Years

1990-99

Although all states received some commodity payments for crop year

1999, six states—Iowa, Illinois, Texas, Kansas, Nebraska, and Minnesota—

each received over a billion dollars in payments. These states collectively

accounted for about 48 percent of the total payments. Six other states

each received over $500 million in payments. These 12 states together

accounted for about 71 percent of the payments. (See table 3.)
Page 25 GAO-01-606 Farm Programs

Table 3: The Percentage of Major Farm Program Payments Received by the 12

States Receiving the Largest Amounts, Crop Year 1999

State

Dollar amount

(in $ billions)

Percentage of total

payments

Iowa $1.59 9.8

Illinois 1.47 9.0

Texas 1.24 7.7

Kansas 1.21 7.5

Nebraska 1.17 7.2

Minnesota 1.07 6.6

Arkansas 0.72 4.4

North Dakota 0.71 4.4

Indiana 0.71 4.4

South Dakota 0.56 3.5

Missouri 0.51 3.2

Ohio 0.51 3.1

Total $11.47 70.8

The number of young entrants to farming lags far behind that of retiring

farmers. For those who want to enter farming, the major obstacle is the

cost of acquiring land, machinery, and other needed capital. Although farm

program payments can help beginning farmers, the payments can also

make it more difficult to get started because their value is reflected in a

higher price for the farmland. While USDA and many states have programs

intended to help those wishing to enter farming, the number of young

farmers continues to decline. Although some fear that this decline will

adversely affect the nation’s food security and the economic well-being of

rural communities, USDA maintains that it will not likely affect food

production or rural economies.

According to USDA, more than 500,000 farmers will retire between 1992

and 2002. In contrast, during this period, only about half as many are

expected to enter farming. Being able to afford farmland is the foremost

obstacle facing those who wish to enter farming. Even finding available

land can be difficult. The turnover of the land is slow and in many areas,

expanding suburbs are reducing the amount of farmland available. Due, in

part, to its scarcity, acquiring farmland is an expensive proposition. After a

sharp downturn in the early 1980s, land values have since rebounded. For

example, according to USDA’s National Agricultural Statistics Service, the

value of agricultural real estate reached an all-time high of $1,050 per acre

as of January 1, 2000. This value is 75 percent above the low-point of $599

Acquiring Land Is the

Major Obstacle for

Those Wishing to

Enter Farming
Page 26 GAO-01-606 Farm Programs

reached in early 1987. According to USDA, it takes an average of $500,000

in assets to fully support a farm household. The amount of assets required,

according to Economic Research Service officials, can vary based on

factors such as the type of farm and the region in which the farm is

located.

Farm program payments are helpful to new farmers once they grow

eligible crops. On the other hand, the payments can also pose a barrier to

prospective farmers wishing to acquire farmland. Once a farmer becomes

eligible for payments, the assistance can help in paying off debts, covering

operating expenses, acquiring additional land, and providing a financial

buffer during periods of low prices and/or production. However, because

most payments are tied to production, as we said earlier, a significant

amount of the subsidies go to relatively few, large, established operators.

Further, the value of the payments causes sellers to ask higher prices or

prospective purchasers to bid up the price of the limited farmland on the

market. According to USDA, generally only established farmers are able to

acquire farmland that becomes available when farmers retire and sell their

land. Accordingly, many young farmers acquire farmland from family

members through inheritance or as a gift.

The federal government and states have a number of policies and

programs that directly or indirectly help beginning farmers. For example,

the Agricultural Credit Improvement Act of 1992 created a beginning

farmer down-payment farm ownership loan program. Under this program,

USDA makes direct and guaranteed operating and ownership loans

available to beginning farmers and ranchers. Since the beginning of this

program in fiscal year 1994, USDA has made over 38,000 loans totaling

$2.9 billion. The act also directed USDA to create Federal-State Beginning

Farmer Partnerships. Under these programs, USDA enters into

memoranda of understanding with interested states to provide joint

financing for beginning farmers and ranchers. According to USDA’s Farm

Service Agency, as of May 2000, the Department has entered into

agreements with 16 states and has provided $87 million in down-payment

farm ownership funds to help more than 2,000 beginning farmers get

started in agricultural careers. Although these loans are helpful in getting

started, repaying the loans increases the new farmers’ debt and expenses,

which make it more difficult for them to earn an adequate income. The

Taxpayer Relief Act of 1997 also helped some beginning farmers by

making it easier to transfer family farms across generations by reducing

estate tax liabilities on farms.
Page 27 GAO-01-606 Farm Programs

In addition, several states have programs in place to assist new and

beginning farmers’ entry into farming. For example, Iowa established the

“Farm On Program.” Similarly, Nebraska’s Center for Rural Affairs Land

Link project includes a computerized clearinghouse for matching

prospective and beginning farmers with landowners willing to help new

farmers; educational programs for beginning farmers; and a farm

management service that provides specialized services to landowners who

want to lease land to beginning farmers. A fund for financing beginning

farmers is also being developed. Other farm states have established similar

programs.

Despite these policies and programs, USDA anticipates that the imbalance

between retiring and beginning farmers may continue over the next

decade. Although some fear this imbalance threatens the nation’s food

supply and the economic well-being of rural America, USDA maintains

that the fewer, larger, more productive farms will provide adequate food

supplies. Moreover, USDA maintains that the nonagricultural economy in

rural communities has grown steadily and agriculture’s’ relative

importance as a source for jobs and income in rural communities is

declining. As a result, rural areas have been able to maintain a constant

non-farm share of the population. Nonetheless, farming is a primary

source of income and jobs in some areas—especially the low-populated

areas of the nation’s heartland. While these areas shared in the nation’s

economic growth during the 1990s, they did not fare as well as other rural

areas.

We provided the Farm Service Agency and the Economic Research Service

with a draft of this report for review and comment. The Farm Service

Agency and the Economic Research Service generally agreed with the

information presented. In addition, they provided several technical and

clarifying comments that we incorporated into the report as appropriate.

To determine the distribution of payments by farm size and farm

operators’ age, we analyzed Agricultural Resource Management Study data

provided by Economic Research Service officials for the years 1991

through 1999. USDA’s National Agricultural Statistics Service collects

these data for the Economic Research Service through an annual survey of

the nation’s farm operations. To determine the distribution of payments by

crop and by state, we analyzed information from the Farm Service

Agency’s Program Payments Reporting System. We discussed the results

with Economic Research Service and Farm Service Agency officials.

Agency Comments

Scope and

Methodology
Page 28 GAO-01-606 Farm Programs

To identify the major barriers facing young people to enter farming, we

reviewed available literature and interviewed knowledgeable officials of

the Economic Research Service and the Farm Service Agency. Through

our literature review and interviews, we also identified USDA’s and states’

programs and initiatives aimed at assisting new and beginning farmers.

(App. II contains a more detailed discussion of our scope and

methodology.)

We performed our work from August 2000 through May 2001 in

accordance with generally accepted government auditing standards. We

did not independently assess the accuracy and reliability of the ARMS

database and the Program Payments Reporting System.

As agreed with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 30 days from the

date of this letter. At that time, we will send copies of this report to the

congressional committees with jurisdiction over farm programs; the

Honorable Ann M. Veneman, Secretary of Agriculture; the Honorable

Mitchell E. Daniels, Jr., Director of the Office of Management and Budget;

and other interested parties. We will also make copies available to others

on request.

If you have any questions about this report, please contact me at

(202) 512-3841. Major contributors to this report are listed in appendix III.

Sincerely yours,

Lawrence J. Dyckman

Director, Natural Resources

 and Environment
Appendix I: Additional Analyses of the

Distribution of Farm Payments

Page 29 GAO-01-606 Farm Programs

Although the dollar value of gross agricultural sales is widely used, farm

size can be expressed in various other ways, such as the number of farm

acres operated (planted in crops). In addition, assigning farms to size

categories, such as large or small, is somewhat arbitrary and can be done

using various definitions or cutoff levels. For example, the National

Commission on Small Farms recommends that farms be considered small

if they have gross agricultural sales of less than $250,000. Because this

definition includes practically all farms—about 93 percent of them in

1999—we further divided the group into small and medium farms, with

large farms being those with sales of $250,000 or more. The Economic

Research Service has often used $50,000 in sales as the cutoff for defining

a small farm and we chose this amount to define small farms for our

analysis. We then considered farms with sales of $50,000 to $249,999 to be

medium farms. Recognizing that farm size can be defined in other ways,

we also analyzed farm payments by (1) the number of farm acres operated,

(2) the National Commission on Small Farms’ definition of a small farm,

(3) a new farm typology developed by USDA’s Economic Research

Service, and (4) the size of payments received by individual recipients or

payees. The Economic Research Service’s new farm typology, which is

based primarily on farm size (the dollar value of agricultural sales) and the

occupation of a farm’s principal operator, is designed to put the diverse

farming sector into more homogenous groups than just large and small

farms. Payments for a farming operation can be made to more than one

individual, and an individual can generally receive payments for his/her

interests in up to three entities.

In 1999, farms of 1,000 or more acres made up about 8 percent of all farms

and received about 52 percent of farm payments. Farms ranging in size

from 250 acres to 999 acres comprised 20 percent of the farms and

received 37 percent of payments. The remaining 72 percent of the farms

operated less than 250 acres; they received 11 percent of the payments.

The share of the payments received by farms of 1,000 or more acres

declined through 1995 and then increased through 1998, before declining

to slightly less than their share in 1991. In contrast, the share of the

payments received by farms of less than 250 acres increased to their

highest level in 1994 and 1995 and then decreased to the approximate

levels they experienced in the years 1991 through 1993. (See fig. 16.)

Appendix I: Additional Analyses of the

Distribution of Farm Payments

Farm Acres Operated
Appendix I: Additional Analyses of the

Distribution of Farm Payments

Page 30 GAO-01-606 Farm Programs

Figure 16: Percentage of Payments by Farms’ Number of Farm Acres Operated, 1991-99

Under the National Commission’s definition, about 93 percent of farms in

1999 were small. As a result of the large number of these farms, they have

received most of the farm payments. However, their share of the payments

has been decreasing. For example, from 1991 through 1995, they received

about 70 percent of the payments. In 1999, their share was about

55 percent. (See fig. 17.)

The National

Commission on Small

Farms’ Definition
Appendix I: Additional Analyses of the

Distribution of Farm Payments

Page 31 GAO-01-606 Farm Programs

Figure 17: Percentage of Farm Payments Received by Large and Small Farms as

Defined by the National Commission on Small Farms, 1991-99

The Economic Research Service’s new farm typology categorizes the

nation’s farms into five groups of small family farms and three groups of

other farms (see table 4).

ERS’ Farm Typology
Appendix I: Additional Analyses of the

Distribution of Farm Payments

Page 32 GAO-01-606 Farm Programs

Table 4: Description of ERS’ Farm Typology

Type of farms Definition

Small family farm types Farms with gross agricultural sales of less than $250,000

that are organized as sole proprietorships, partnerships,

or family corporations.

Limited resource Any small family farm with gross sales less than

$100,000, total farm assets less than $150,000, and total

operator household income less than $20,000. Limited

resource farmers may report their income as from

farming, a nonfarm occupation, or retirement.

Retirement Small family farms whose operators report that they are

retired (excludes limited resource farms operated by

retired farmers).

Residential/lifestyle Small family farms whose operators report a major

occupation other than farming (excludes limited resource

farms with operators reporting a nonfarm major

occupation).

Farming occupation/lower

sales

Small family farms with sales less than $100,000 whose

operators report farming as their major occupation

(excludes limited resource farms whose operators report

farming as their major occupation).

Farming occupation/higher

sales

Small family farms with sales between $100,000 and

$249,999 whose operators report farming as their major

occupation.

Other farm types Farms that are not small family farms.

Large family farms Farms with sales of $250,000 to $499,999.

Very large family farms Farms with sales of $500,000 or more.

Nonfamily farms Farms organized as nonfamily corporations or

cooperatives, as well as farms operated by hired

managers.

The mix of farm types in 1999 changed from 1993, the first year for which

these data are available by the farm typology. For example, the limited

resource, farming occupation/lower sales, and farming occupation/higher

sales farm types decreased as a percentage of total farms from the 1993

levels. At the same time, the retirement, residential/lifestyle, large, very

large, and nonfamily types increased. The largest increases were in the

residential/lifestyle and retirement farms.

The portion of farm payments received by the individual farm types has

also changed from the 1993 levels. For example, the percentage of

payments received by the large, very large, and nonfamily farm types

increased from 1993 and decreased for the other farm types. These farms

also experienced substantial increases in the average payment that they

received in 1999, when total payments to all farm types were over

50 percent higher than in 1993. The average payment for farms receiving
Appendix I: Additional Analyses of the

Distribution of Farm Payments

Page 33 GAO-01-606 Farm Programs

payments either went down or increased only slightly for the limited

resource, retirement, residential/lifestyle, and farming occupation/lower

sales farms. (See table 5.)

Table 5: Percentage of Farms and Payments and Average Payments by ERS’ Farm Typology, 1993 and 1999

Farm type

Percentage of

farms in 1993

Percentage of

farms in 1999

Percentage of

payments in

1993

Percentage of

payments in

1999

Average

payment in

1993 (in

dollars)

Average

payment in

1999 (in

dollars)

Limited resource 14 6 3 1 4,026 3,924

Retirement 11 14 5 3 7,457 5,061

Residential/lifestyle 33 43 10 9 5,715 5,016

Farming occupation/lower

sales

25 22 19 15 8,517 8,833

Farming

occupation/higher sales

10 8 31 25 20,268 27,022

Large 3 4 18 21 34,674 50,790

Very large 2 3 13 22 50,763 85,208

Nonfamily 1 2 3 4 17,934 34,128

Over the last decade, a relatively small portion of recipients has received

the bulk of farm payments. For example, from 1990 through 1999,

10 percent of the recipients generally accounted for between 49 and

60 percent of farm crop or commodity payments. (See fig. 18.) Moreover,

20 percent of the recipients generally received from about 69 percent to

about 79 percent of the payments.

Individual Recipients
Appendix I: Additional Analyses of the

Distribution of Farm Payments

Page 34 GAO-01-606 Farm Programs

Figure 18: Percentage of Farm Commodity Payments Received by the Top

10 Percent of Recipients
Appendix II: Scope and Methodology

Page 35 GAO-01-606 Farm Programs

To determine the distribution of farm payments over the past decade by

farm size, the age of farm operators, crop, and state, we analyzed data

from USDA’s Agriculture Resource Management Study (ARMS) surveys

(formerly the Farm Costs and Returns Surveys) and its Program Payments

Reporting System (PPRS). The ARMS surveys are USDA’s primary vehicle

for collecting data on a wide range of issues about agriculture resource

use and costs and farm financial conditions, while the PPRS is its main

database on farm program payments.

The ARMS is an annual survey of U.S. farm operations (excluding

institutional operations, such as prisons and Indian reservations) in the 48

contiguous states that is designed and administered by USDA’ s National

Agricultural Statistics Service. The National Agricultural Statistics Service

compiles the survey results and transfers them to USDA’s Economic

Research Service (ERS) to maintain and analyze. The surveys are carried

out through personal interviews of the principal operator of a random

sample of farms selected to be representative of farms nationwide.

(Landlords, who under certain circumstances may receive farm payments,

are not included in the surveys.) Participation in the surveys is voluntary,

and all individual responses are confidential. Survey coverage includes the

financial and operating characteristics of farms and their crop and

livestock production practices in a given year. For example, it includes

data on such aspects as acres operated; crop and livestock production;

rents paid and received; income from crops and livestock; other farm

income, such as government (farm program) payments; off-farm income;

production expenses; assets; debt; the farm operator; and the farm

household.

At our request, ERS provided us with summary data from the ARMS

surveys for 9 years, 1991 through 1999. The data for 2000 will not be

available until later in 2001, and data for the years prior to 1991 were not

comparable to these years. In 1992, the National Agricultural Statistics

Service revised the procedures that it uses to expand the ARMS sample to

create national estimates in order to more accurately account for coverage

of farms and nonresponses to the survey. The Service used the new

procedures to adjust and resummarize the data for 1991, but not for earlier

years.

To determine the distribution of farm payments by farm size, we analyzed

the ARMS data provided on the amount of government payments that

farms received, the dollar value of their gross agricultural sales, the

number of farm acres they operated, and how ERS classified them

according to its farm typology, which is based, in part, on gross

Appendix II: Scope and Methodology
Appendix II: Scope and Methodology

Page 36 GAO-01-606 Farm Programs

agricultural sales. As part of our analysis, we also reviewed ARMS data on

the percentage of farms receiving payments, average payments per farm,

farms’ percentage of the acreage planted and value of production of the

crops for which farm program payments are made, payments as a

percentage of gross cash income, and farms’ financial position.

To determine the distribution of farm payments by the age of farm

operators, we analyzed the ARMS data on the age of the farms’ principal

operators and the amount of payments received by their respective farms.

This information also included data on the number of farms reporting

payments, the percentage of planted acreage and the value of production

of crops eligible for farm payments, payments as a percent of gross cash

income, average payments, and the farms’ financial position.

The ARMS surveys ask for the amount of payments received by farms

under all federal and state agricultural programs. According to ERS staff,

very little, if any, farm payments are made by states.

We used the PPRS to determine the distribution of farm payments by crop

and state. The PPRS, which is maintained by the Farm Service Agency,

contains a record of the individual payments made under the federal

agricultural programs. These data include the payee’s name, the amount of

the payment, the program, a farm identifier, the farm’s location, and the

crop for which the payment was made. Farm Service Agency officials

provided us with electronic files of the PPRS data for the last decade, 1990

through 1999. We limited our analysis to the four major farm program

payments—(1) production flexibility contract payments (deficiency

payments before 1996), (2) marketing loan gain/loan deficiency payments,

(3) crop disaster payments, and (4) market loss payments. Payments under

the Conservation Reserve Program are based on the number of acres

enrolled in the program rather than the production of a crop or

commodity.

To identify the major barriers that make it difficult for young people to

enter farming, we reviewed available literature and interviewed

knowledgeable Farm Service Agency and Economic Research Service

officials. Through our review of the literature and our interviews, we also

identified various programs and initiatives of USDA and the states to assist

new and beginning farmers.
Appendix II: Scope and Methodology

Page 37 GAO-01-606 Farm Programs

We performed our work from August 2000 through May 2001 in

accordance with generally accepted government auditing standards. We

did not independently assess the accuracy and reliability of the ARMS or

PPRS databases.
Appendix III: GAO Contacts and Staff

Acknowledgments

Page 38 GAO-01-606 Farm Programs

Lawrence Dyckman (202) 512-3841

Gregory Kosarin (202) 512-6526

In addition to those named above, Raymond H. Smith, Jr.; Nancy S.

Bowser; Mitchell B. Karpman; Arthur L. James, Jr.; and Charles W. Bausell,

Jr., made key contributions to this report.

Appendix III: GAO Contacts and Staff

Acknowledgments

GAO Contacts

Acknowledgments

(150198)
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