Economic 

Information

Bulletin

Number 49

March 2009

United States 

Department 

of Agriculture

Economic 

Research 

Service

Erik J. O’Donoghue, Robert A. Hoppe, 

David E. Banker, and Penni Korb 

Exploring Alternative Farm Definitions

Implications for Agricultural Statistics 

and Program Eligibility
www.ers.usda.gov

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Exploring alternative farm definitions : implications for agricultural 

statistics and program eligibility.

(Economic information bulletin ; no. 49)

1. Farms, Size of—United States. 2. Agriculture—Statistics—United 

States. 3. Agricultural administration—United States. 4. Agriculture 

and state—United States.

I. O’Donoghue, Erik J. II. United States. Dept. of Agriculture. 

Economic Research Service.

III. Title.

HD1470.5.U6

www.ers.usda.gov/

Photo credit: NRCS, USDA

Briefing/FarmPolicy
United States 

Department 

of Agriculture 

www.ers.usda.gov

A Report from the Economic Research Service

Abstract

Meeting agricultural policy and statistical goals requires a defi nition of U.S. agriculture’s basic unit, the farm. However, these goals can be at odds with one another. 

USDA defi nes “farm” very broadly to comprehensively measure agricultural activity. 

Consequently, most establishments classifi ed as farms in the United States produce very 

little, while most production occurs on a small number of much larger operations. While 

desirable for obtaining comprehensive national coverage, measurement and analysis 

based on the current defi nition can provide misleading characterizations of farms and 

farm structure in the United States. Additionally, more stringent requirements have been 

proposed for farms to qualify for Federal agricultural program benefi ts. This analysis 

outlines the structure of U.S. farms, discusses the current farm defi nition, evaluates 

several potential criteria that have been proposed to defi ne target farms more precisely, 

and examines how these criteria affect both statistical coverage and program eligibility.

Keywords: Agricultural statistics, Agricultural Resource Management Survey (ARMS), 

farm businesses, farm defi nition, program eligibility

Acknowledgments

The authors thank Ron Durst, Jim MacDonald, Mitch Morehart, and Pat Sullivan of the 

Economic Research Service (ERS), Ray Bollman of Statistics Canada, Ferd Hoefner of 

the National Sustainable Agriculture Coalition, Steve Koenig of USDA’s Farm Service 

Agency, Jim Monke of the Congressional Research Service, Joe Reilly of USDA’s 

National Agricultural Statistics Service, and an anonymous referee for their helpful 

comments. We also thank Priscilla Smith for her help editing and preparing the report for 

publication and Cynthia A. Ray for the design and layout of the report.

Exploring Alternative Farm 

Defi nitions

Implications for Agricultural Statistics 

and Program Eligibility

Economic

Information

Bulletin

Number 49

March 2009

Erik J. O’Donoghue, Robert A. Hoppe, 

David E. Banker, and Penni Korb
ii

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Contents

Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Farm Defi nition Matters for Statistics and Federal Programs . . . . . . . . 2

 What Defi nes a Farm in USDA Statistics? . . . . . . . . . . . . . . . . . . . . . . . . 3

 How Are U.S. Farms Characterized? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

What Kinds of Screens Might Capture Active Farming? . . . . . . . . . . . 15

 Farm Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

 Share of Income From Farming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

 Off-Farm Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

 Family Farm Defi nitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

 Alternative Family Farm Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

 The Screens and Family Farm Defi nitions . . . . . . . . . . . . . . . . . . . . . . . 27

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Recommended citation format for this publication: 

O’Donoghue, Erik J., Robert A. Hoppe, David E. Banker, and Penni 

Korb. Exploring Alternative Farm Defi nitions: Implications for 

Agricultural Statistics and Program Eligibility. EIB-49, U.S. Dept. of 

Agriculture, Econ. Res. Serv. March 2009.
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Summary 

Meeting agricultural policy and statistical goals requires a defi nition of agriculture’s basic unit, the farm. USDA defi nes “farm” very broadly to comprehensively measure agricultural activity. Consequently, most establishments 

classifi ed as farms in the United States produce little output, while most 

production occurs on a small number of much larger operations. 

What Is the Issue?

The current farm defi nition, while desirable for obtaining extensive national 

coverage, can provide misleading characterizations of U.S. farms and farm 

structure. Additionally, concerns have been raised that current farm (and 

farmer) defi nitions are too inclusive, making some producers with marginal 

involvement in agriculture eligible for Federal aid. Consequently, policymakers have proposed several criteria to restrict Federal assistance eligibility. 

What Did the Study Find?

The vast majority of U.S. farms together contribute a small share of total 

agricultural production, while relatively few farms produce the bulk of crops 

and livestock. The 2006 Agricultural Resource Management Survey (ARMS) 

showed that an estimated 75 percent of all farms each sold less than $50,000 

worth of agricultural products. These farms together:

• generated less than 6 percent of total U.S. gross agricultural sales 

• operated about 25 percent of the acres used in farming 

• incurred less than 15 percent of the total cash expenses used to operate 

farms in the United States.

Over 440,000 of those farms (more than 1 out of every 5 farms in the United 

States) realized less than $1,000 in sales in 2006.

By contrast, fewer than 10 percent of U.S. farms generated at least $250,000 

in sales in 2006. Yet these farms:

• generated more than 75 percent of all U.S. gross agricultural sales

• operated more than 40 percent of all acres used in farming

• incurred two-thirds of all U.S. farms’ cash expenses. 

Because USDA’s broad defi nition includes such a wide variety of farms, care 

should be taken when interpreting aggregate agricultural statistics. 

Additionally, a broad farm defi nition does not help policymakers target 

Federal assistance at farms and producers actively engaged in agricultural 

production. Narrower defi nitions increase the likelihood that policymakers 

can achieve goals such as establishing price and farm income support, 

providing support to beginning farmers to increase U.S. agriculture’s future 

viability, and protecting and preserving natural resources. 

Accordingly, policymakers have proposed three main screens to restrict 

Federal assistance to achieve these goals better. Noting that operators heavily 
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engaged in farming usually generate high levels of sales and low levels of offfarm income, policymakers suggested grouping farms by sales levels (a sales 

screen), shares of household income derived from farming (a farm-income 

screen), and levels of off-farm income generated (an off-farm income screen).

However, potential drawbacks exist. Some farmers, while heavily engaged 

in farming activities, may only generate low levels of output or sales. For 

example, establishing an apple orchard requires growing trees for several 

years before fruit harvesting can begin. Additionally, inclement weather or 

livestock diseases can cause substantial production losses. Farmers also may 

choose to place products into inventory rather than sell them. 

Calculating household incomes generates further concerns. Farmers with 

major recent expenses can have positive cash fl ows but negative net farm 

incomes. Additionally, off-farm income does not always indicate the household’s level of involvement in agriculture. For example, almost 22 percent of 

operators with households generating at least $100,000 of off-farm income 

described their principal occupation as “farm or ranch work.” Off-farm businesses may also incur signifi cant expenses and losses that can lower total net 

off-farm incomes, reducing the household’s apparent reliance on off-farm 

income. In 2006, roughly 14 percent of farm operators with off-farm income 

below $1,000 described their principal occupation as “work other than 

farming/ranching,” while another 11 percent considered themselves “not in 

the paid workforce.”

Since the early 1980s, agricultural production has shifted dramatically to 

larger farms. As size increases, so does farm complexity, often leading to 

greater reliance on hired labor, rented equipment and land, and more intricate 

ownership arrangements. These trends have raised concerns among some that 

large, corporate farms are replacing the family farm and that farm program 

payments are not doing enough to preserve the family-farm structure of U.S. 

agriculture. Despite numerous organizations interpreting the term “family 

farm” differently, the majority of all U.S. farms, including some of the very 

largest farms, still qualify as family farms. Use of the screens discussed 

above could highlight potential confl icts between the goals of supporting 

family farms and restricting assistance to actively engaged farmers. 

Restricting Federal assistance only to those whose farm provided most of 

their household income could disqualify large shares of family farms from 

Federal aid (see table below).

How various criteria would have affected Federal aid eligibility for family farms in 2006

If eligibility had been

contingent on:

Share of family farms that 

would have been disqualifi ed

Share of family farm sales

by the disqualifi ed group

Farm income provides at least

 50% of household income 82-87% 30-40%

Annual farm sales of at least 

 $10,000 58-70% <4%

Annual off-farm income does not

 exceed $100,000 18-20% 10-15%
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How Was The Study Conducted?

The National Agricultural Statistics Service (NASS) and the Economic 

Research Service (ERS) jointly design and administer multiple surveys annually, known collectively as USDA’s Agricultural Resource Management 

Survey (ARMS), which covers U.S. farming operations in the 48 contiguous 

States. This report focuses on the 2006 ARMS Phase III, which collected 

detailed information on farm operations and farm households from 21,700 

respondents. 

Particularly relevant to this report are ARMS data on acres operated, cash 

expenses, conservation practices, government payments, gross sales, household income, off-farm income, and characteristics of the farm, household, 

and operator. ARMS also sorts farms into sales categories, enabling the 

examination of data by sales class to provide a clearer picture of the structure 

of U.S. agriculture.

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Introduction

The Federal Government has long collected agricultural statistics. The fi rst 

Census of Agriculture was undertaken in 1840, laying the groundwork for 

the agricultural statistics that continue to be produced today.1

Some statistics—such as crop acreage and production, livestock inventories 

and production, or farm revenues and expenses—are based on farm-level 

reports, and therefore require a farm defi nition. A broad defi nition, covering 

many businesses with very little farming activity, can provide a comprehensive accounting of aggregate land use and production. Narrower defi nitions 

may exclude businesses with limited farming activity, and may therefore 

provide less complete coverage of some aggregate statistics in favor of more 

focused coverage of entities with more substantial farming activity. Today, 

USDA uses a broad defi nition, defi ning a farm as any place that sells, or 

normally could sell, at least $1,000 of agricultural commodities.

The current USDA defi nition provides extensive coverage of the farm sector 

and yields a clear pattern throughout U.S. agriculture for most commodities: most farms are very small and the bulk of production occurs on large 

farms, which constitute a small share of all farms. For example, some cattle 

operations can feed 40,000 head at one time. However, data from USDA’s 

Agricultural Resource Management Survey show that most farms with cattle 

in 2006 had very few: an estimated 22 percent had fewer than 10 head on the 

farm, while another 24 percent reported 10-25 head.

That pattern is not limited to cattle. Although farms with 100-500 acres 

of corn accounted for 40 percent of the 2006 corn harvest, 2,000 farms 

harvested at least 2,000 acres of corn, while another 22,000 farms harvested 

10 acres or less. Similarly, some fruit and vegetable farms harvested over 

1,000 acres in 2006, and many had sales in the tens of millions of dollars. 

But most are much smaller: 80 percent of all fruit and vegetable operations 

harvested fewer than 50 acres. While those small farms generally had sales 

totaling less than $2,000, some small acreage operations grew high-value 

crops, such as herbs, generating sales in the millions of dollars.

Broad coverage can easily mask underlying variation in agricultural production. If not used carefully, aggregate USDA statistics can lead to misleading 

representations of farm characteristics since farm-level averages are dominated by the many operations with limited production. To understand U.S. 

agriculture better, it is important to disaggregate the statistics and examine 

the heterogeneity of farms more closely. 

 1For more information, see http://

www.nass.usda.gov/About_NASS/

History_of_Ag_Statistics/index.asp/. 
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Farm Defi nition Matters for Statistics and 

Federal Programs

The defi nition of a farm is important for farm statistics and for the design and 

delivery of farm programs. In 2006, farmers received close to $13 billion in 

various commodity program payments and another $3 billion in conservation payments, for a total of nearly $16 billion in direct payments from the 

Federal government. Farmers also received assistance from various indirect 

sources such as subsidized premiums for crop insurance, or credit assistance 

in the form of loan guarantees and subsidized interest rates for farm operating and ownership loans. Additionally, funding for agricultural research 

and extension services, as well as a handful of other Federal programs, is 

allocated across States in accordance with each State’s share of the Nation’s 

farm population. Rules must therefore be set to defi ne farms and farmers and 

to determine program eligibility.

The diversity of U.S. farms complicates agricultural statistics as well as the 

design of Federal farm programs. A substantial number of farms produce 

very little output or sales. Many farm households have a small commercial 

farm business, but draw the bulk of their income, and devote the majority of 

their time, to nonfarm employment. At the other end of the size spectrum, 

very large farms often have multiple stakeholders, including some owners or 

shareholders who may provide substantial capital, but little on-farm labor or 

management. 

Policymakers realize that U.S. farms cover a wide range of entities, and have 

attempted to limit some Federal agricultural payments to those operated by 

individuals deemed “actively engaged” in farming. While the term “actively 

engaged” has been used by some government agencies as a very precise term 

with explicit specifi c applications toward policy goals, others (including policymakers) have used the term in a broader sense to capture the spirit of the 

level of involvement of an individual, household, or entity in farming. In this 

report, the term is used in the latter sense (see box “What Does It Mean To 

Be “Actively Engaged?”). 

In an attempt to target commodity programs more effectively, legislators 

added eligibility restrictions to the 2008 Farm Act. Some aimed to exclude 

high-income individuals from participating in Federal farm programs. As 

defi ned, high-income individuals either generate average adjusted gross 

nonfarm income exceeding $500,000, or average adjusted gross farm income 

in excess of $750,000. Another provision excludes very small-scale operators. Beginning in the 2009 crop year, farmers with fewer than 10 base acres 

are barred from receiving direct, countercyclical, or average crop-election 

payments, unless the farmers qualify as either socially disadvantaged or 

limited-resource farmers.2 

Although the income and base acre constraints were defi ned specifi cally 

to apply to direct Federal payments, since the limits remain high (for the 

income constraints) or low (for the base-acre constraints) the restrictions do 

not substantially limit eligibility. Some policymakers have sought to refi ne 

the idea of an “actively engaged” farmer. 

 2USDA defi nes a socially disadvantaged farmer, rancher, or agricultural producer as a member of a group 

whose members have been subjected 

to racial, ethnic, or gender prejudice 

due to belonging to the group, without 

taking into account the qualities of the 

individual. Groups that belong to this 

classifi cation include women, African 

Americans, American Indians, Alaskan 

natives, Hispanics, Asian Americans, 

and Pacifi c Islanders. In 2003, USDA 

defi ned limited-resource farmers as 

those with direct or indirect gross 

farm sales of not more than $100,000 

in each of the previous 2 years (to be 

increased beginning in fi scal year 2004 

to adjust for infl ation using NASS’s 

Prices Paid by Farmer Index), and 

having a total household income at or 

below the national poverty level for a 

family of four or less than 50 percent 

of the median household income of the 

county in each of the previous 2 years.
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For example, in 2007 House Agriculture Committee Chairman Collin 

Peterson called for eliminating “nonfarmers” from receiving Federal 

payments (Abbott, 2007). He suggested raising the USDA sales limit used 

to defi ne a farm from the $1,000 limit currently in use to $10,000 or $50,000 

(Good, 2008). During the debate over the now-enacted 2008 Farm Act, 

Sen. Tom Coburn (R-OK) in December 2007 argued that Federal payments 

should be limited to more narrowly defi ned farmers, and proposed that 

Environmental Quality Incentives Program (EQIP) payments should be 

restricted to farmers who generated at least two-thirds of their income from 

agriculture (Congressional Record, 2007). While these proposals surfaced in 

2007, none of them were included in the 2008 Farm Act.

What Defi nes a Farm in USDA Statistics?

With the goal of capturing as much production as possible, the defi nition of 

a farm has changed multiple times since originally introduced. For the 1850 

Census, a farm was defi ned as any establishment that sold at least $100 worth 

The term “actively engaged” has both general, and very specifi c, implications. Congress requires farmers 

to be actively engaged in farming to be eligible for certain farm programs (such as the Conservation 

Reserve Program or various commodity programs). Originally written into law in Section 1001A of the 

Food Security Act of 1985, the provisions establishing the term “actively engaged” have been amended 

through subsequent farm bills. Putting aside clauses for special classes of individuals, the term “actively 

engaged” applies to either individuals or entities. As currently amended, an individual (or entity) is considered actively engaged in farming if the person (entity) makes a signifi cant contribution (based on the total 

value of the farming operation) to the farming operation of capital, equipment, or land and a signifi cant 

contribution of personal labor or active management (and, in the case of an entity, the collective contribution of personal labor or active management must be signifi cant). Additionally, the individual’s (entity’s) 

share of profi ts/losses from the operation must be commensurate with the contributions of the individual 

(entity) to the farming operation. Finally, the individual’s (entity’s) contributions have to be deemed at 

risk, meaning that the individual (entity) would have to face the possibility of suffering a loss. 

Although codifi ed in law, these provisions in the current Farm Act remain relatively general in nature. In 

contrast, USDA’s Farm Service Agency (FSA), a program agency tasked with using these general guidelines to establish rules to create measurable standards to enact the provisions effectively, has much more 

specifi c criteria to identify those “actively engaged” in farming. As written in the FSA Handbook 1-PL, 

to be considered “actively engaged,” an individual is required to supply the lesser of 1,000 hours of labor 

per fi scal (or crop) year or half of the total hours necessary to conduct a farming operation comparable in 

size to the individual’s (entity’s) commensurate share in the farming operation. FSA imposes similarly 

specifi c restrictions on the contributions of capital, equipment, and land, while also helping to defi ne 

what constitutes active personal management (a much more diffi cult concept to quantify). 

Most generally, the term “actively engaged” encompasses the operator’s level of involvement in the 

farming enterprise. Does the operator rely heavily on farming for a living? Does the operator devote 

a signifi cant amount of labor to the operation? Or is the farm more of a hobby enterprise than a profi toriented business? Policymakers are currently attempting to refi ne the broader defi nitions of a farmer to 

include a narrower, more measurable sense of “active engagement” to enable them to target some program 

payments more effectively. In this report, we use the most general sense of the term “actively engaged.”

What Does It Mean To Be “Actively Engaged?”
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of agricultural goods. In 1870, a farm had to have at least $500 worth of sales 

or more than three acres of productive land. By 1900, sales and acreage limits 

were dropped. Instead, the entire time of at least one individual needed to 

be devoted to the farm during the year. In 1925, when the agriculture census 

began to be taken every 5 years instead of every 10, the defi nition of a farm 

reverted to using an acreage/sales screen combination, this time requiring at 

least three acres of productive land or $250 worth of agricultural sales. 

In 1975, USDA, the Offi ce of Management and Budget (OMB), and the U.S. 

Department of Commerce’s U.S. Census Bureau agreed on a defi nition of 

a farm that is still in use today.3 “A farm is currently defi ned, for statistical 

purposes, as any place from which $1,000 or more of agricultural goods (crops 

or livestock) were sold or normally would have been sold during the year under 

consideration” (Glossary, 2005). USDA’s National Agricultural Statistics 

Service (NASS) also includes government payments as sales. In other words, a 

farm is defi ned as any place with any combination of sales, potential sales, and 

government payments totaling at least $1,000.

The phrase “normally would” aims to ensure the inclusion of farms that do, 

or could, contribute to agricultural production, even if they did not have 

$1,000 in sales. Farms might experience adverse events, such as droughts, 

hurricanes, fi res, or disease that destroy the farm’s production in a particular 

year (or several consecutive years). Some commodities require a long production cycle before sales are realized. For example, a new orchard will typically 

require several years before the trees mature and harvest can begin. Even for 

crops with annual production cycles, crops might be harvested and stored, 

with no sales recorded during a year. Current practice aims to include establishments with the capacity to realize at least $1,000 in revenues from any 

combination of government payments, cropland, and/or livestock activities. 

To identify farms that could normally produce at least $1,000 worth of agricultural commodities, USDA uses a system that assigns specifi c point values 

for crop acreage and livestock inventory. Each assigned point represents $1 in 

potential sales; any establishment with 1,000 points ($1,000 of potential sales) 

is classifi ed as a farm. In USDA statistics, such places are called “point farms” 

and are numerous, since many places could produce $1,000 in sales from 

the cropland and livestock on the premises (see box, “How Large Is a Point 

Farm?”). Overall, using 2006 ARMS data, we estimate that there were approximately 440,000 point farms (over 20 percent of all farms). The newly released 

2007 Census of Agriculture reports roughly 500,000 point farms. NASS 

created new methodologies to collect the data for this Census of Agriculture, 

designed to more accurately count small farms. While NASS believes that the 

new methodologies account for at least some of the increase in small farms 

reported, the new Census of Agriculture data suggest that almost 23 percent 

of all farms in the United States had the potential to generate at least $1,000 

worth of agricultural sales, yet did not do so (USDA/NASS, 2009).

Due to its broad, inclusive nature, the current USDA defi nition of a farm 

encompasses almost all organizations that produce agricultural goods, from 

small farms with very little or no production, to commercial farm businesses 

with sales in the millions of dollars. Such variation means that simple statistics of the agricultural sector can be misleading. Figures 1-7 show a range of 

farm sizes and provide a picture of farm structure useful for helping to refi ne 

the term “actively engaged.” 

 3 In 1997, USDA’s National Agricultural Statistics Service took over the 

Census of Agriculture duties from the 

U.S. Census Bureau.
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How Are U.S. Farms Characterized?

Each year, the National Agricultural Statistics Service (NASS) and the 

Economic Research Service (ERS) jointly design and administer multiple 

surveys (collectively, the Agricultural Resource Management Survey, or 

ARMS) covering U.S. farming operations in the 48 contiguous States. The 

information in this report was obtained from the 2006 Phase III component of 

the survey, the most recent available data at the time the report was written. 

This survey collected detailed information relevant to the farm operation 

and the farm operator’s household from 21,700 respondents. Additionally, 

the survey contains weights that take into account the sampling procedures 

used to create ARMS. These weights allow for the expansion of the data 

to estimate selected State and national level statistics.4 We describe how: 

gross sales; cash expenses; farm, household, and operator characteristics; 

household income, including off-farm income; acres operated; government 

payments; and conservation practices vary across U.S. farms. In turn, these 

structural descriptors can help us evaluate the coverage offered by various 

farm criteria and defi nitions.

 4For more information on ARMS, 

see http://www.ers.usda.gov/Briefi ng/

ARMS/. 

Small fi elds of crops or a few livestock animals allow agricultural operations to qualify as “point” farms under USDA’s system. While hardly 

exhaustive, the following attributes would certify a rural establishment 

as a point farm in 2006:

• four acres of corn 

• a little more than fi ve and a quarter acres of soybeans

• eight and one-third acres of wheat

• one-third of an acre of tobacco

• one-tenth of an acre of berries

• just over one-third of an acre of vegetables

• one milk cow

• three beef cattle

six hogs• 

• fi ve horses or ponies

More than 80 percent of U.S. point farms fall into fi ve main production 

categories:

1. 25 percent qualify as horse farms

2. another 20 percent have cattle or calves

3. approximately 17 percent grow hay or grasses, including farmland 

enrolled in the Conservation Reserve Program (CRP), a program 

designed to take environmentally sensitive (e.g., highly erodible) 

land out of production

4. a little more than 10 percent have a few acres of grains or 

oilseeds

5. 10 percent have sheep and goats

Note: The 2006 ARMS Phase III Survey Administration Manual contains information concerning point farm eligibility that allowed the calculation of these 

amounts of commodities.

How Large Is a Point Farm?
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Sales

In 2006, the mean sales of all U.S. farms were approximately $106,000. 

However, because most farms are either very small or very large, very few 

farms actually had sales near this amount (fi g. 1). While half of all farms 

generated sales of $6,600 or less, fewer than 1 percent of all farms sold 

between $100,000 and $110,000 worth of goods.

In 2006, most farms did not produce or sell much output. Almost 1.2 million 

operations (nearly 58 percent of all farms) had sales of less than $10,000 

each, together producing only 1.5 percent of total farm sales in the U.S. 

(table 1). More than one in three of these farms were point farms, with less 

than $1,000 in sales. 

Another 385,000 farms generated sales between $10,000 and $50,000. 

Despite relatively low levels of individual sales, farms in this sales class 

generated approximately $8 billion in total sales, or close to 4 percent of all 

agricultural sales in 2006.5

By contrast, just 1.7 percent of all farms generated nearly half of all agricultural sales in 2006. Fewer than 10 percent of farms sold at least $250,000 

worth of agricultural goods in 2006, yet these farms produced more than 75 

percent of all U.S. gross agricultural sales.

Expenses

To run the farm, operators incur many different costs including livestock and 

feed purchases, seed, fertilizer, and chemicals expenses, along with labor, 

fuel, maintenance, and utility costs and other miscellaneous expenses. In 

addition, fi xed capital expenses for farm structures such as barns and sheds, 

fences, and equipment such as tractors and combines can be substantial. 

Together with taxes, interest and insurance expenses, and rental and lease 

 5A farm with sales between $10,000 

and $50,000 is a fairly small operation. 

For example, at 2006 prices and yields, 

143 acres of winter wheat would garner 

sales of $25,000. Similarly, 95 acres of 

soybeans or 52 acres of corn (for grain) 

would also generate $25,000 in sales. 

In terms of livestock, 264 head of hogs 

or 24 head of beef cattle at 2006 prices 

would be worth $25,000. Since managing these small operations does not require 2,000 hours of labor over a year, 

this implies that a substantial number 

of operators farm on a part-time basis.

Figure 1

Distribution of farms and agricultural sales, 2006

<$1,000 $1,000-

$9,999

$10,000-

$49,999

$50,000-

$99,999

$100,000-

$174,999

$175,000-

$249,999

$250,000-

$499,999

$500,000+

0

10

20

30

40

50

60

70

Farms Sales

 Source: USDA, Agricultural Resource Management Survey, 2006.

Half of all farms had sales 

less than $6,600

Few farms and little 

production fall near mean 

sales ($106,000) 

Sales class

Percent of total farms or sales
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payments, these costs combine to make up total cash expenses. USDA farm 

statistics aim to track aggregate expenses at the national and State levels.

In 2006, point farms incurred nearly 3 percent of all U.S. cash expenses (fi g. 

2, table 1). Most of the more than 440,000 farms falling in this category had 

very little, if any, production, and on average incurred few expenses. Despite 

selling very little, however, a substantial number did generate signifi cant 

expenses. About one out of every three point farms incurred at least $10,000 

worth of expenses.6 Some of these operations, like those establishing 

orchards, expect to generate far more than $1,000 in sales in the future. 

Farms with less than $10,000 in sales—including point farms—incurred 

7.5 percent of all cash expenses in the United States; farms selling less 

than $50,000 incurred 13.8 percent of all U.S. cash expenses. Even though 

contributing very little to the overall sales of agricultural products in the 

United States, these farms did contribute substantially to the costs incurred 

by the sector. Some of these farms may have large expenses relative to their 

sales (including the point farms) in an effort to take advantage of tax laws—

incurring large costs to shield some (or all) of their income from taxation 

(Durst and Monke, 2001). 

Occupation and labor allocation

While farm sales can vary widely from one farm to the next, individuals do 

not necessarily consider themselves farmers based on the level of sales they 

generate on the farm. One way to explore this issue is to look at self-reported 

data concerning occupation and labor allocation. 

About 25 percent of operators on farms generating less than $10,000 in 

sales considered farming their primary occupation in 2006 (fi g. 3, table 1), 

while 8 percent of operators on farms generating less than $10,000 in sales 

reported spending at least 2,000 hours of labor on the operation during the 

 6Of these farms, a small number 

(estimated at 3,800) had expenses 

between $50,000 and $100,000 while 

an additional few (2,100 operations) incurred expenses in excess of $100,000. 

These farms may have encountered 

adverse conditions (e.g., bad weather, 

livestock losses to illnesses, etc.), may 

have been starting out and have long 

production cycles (e.g., orchards), or 

may have decided to store rather than 

sell their output.

Figure 2

Percent of sales and expenses by sales class, 2006

 Source: USDA, Agricultural Resource Management Survey, 2006.

0

10

20

30

40

50

60

70

Sales Expenses

<$1,000 $1,000-

$9,999

$10,000-

$49,999

$50,000-

$99,999

$100,000-

$174,999

$175,000-

$249,999

$250,000-

$499,999

$500,000+

Sales class

Percent of total U.S. sales or expenses
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Table 1

Selected characteristics of farms and operators by sales class, 2006 

Sales class

Item Less than 

$1,000

$1,000 to 

$9,999

$10,000 to 

$49,999

$50,000 to 

$99,999

$100,000 

to 

$174,999

$175,000 

to 

$249,999

$250,000 

to 

$499,999

$500,000 

or more

All

Number

Total farms 444,763 753,812 384,985 163,630 105,203 60,064 90,239 80,978 2,083,674

Percent of U.S. total

Distribution of:

Farms 21.3 36.2 18.5 7.9 5.0 2.9 4.3 3.9 100.0

Gross sales 0.0 1.5 4.1 5.3 6.4 5.7 14.4 62.5 100.0

Cash expenses 2.8 4.7 6.3 6.3 7.0 6.1 14.5 52.1 100.0

Acres operated 3.5 9.6 14.6 12.7 11.3 7.9 16.0 24.4 100.0

 Government 

 payments 0.2 6.6 11.4 9.8 10.0 8.6 20.5 32.9 100.0

 Conservation 0.6 25.7 27.9 13.5 7.0 3.9 9.5 11.9 100.0

 Commodity-

 related 0.1 1.9 7.4 8.9 10.7 9.7 23.2 38.0 100.0

 CRP or WRP

 acres 0.9 34.0 29.8 13.3 5.3 4.3 6.9 5.4 100.0

Acres operated

Median acres 

 operated 30 68 164 310 423 640 825 1,200 100

Percent

Share of acres

 operated owned

 by operation 101.3 110.5 73.5 69.2 54.3 41.6 44.5 51.3 62.7

Percent of group

Operator age 65 

 or more 21.1 33.8 34.3 29.7 17.2 17.9 16.0 14.3 28.1

Occupation:

Farm/ranch work 19.8 29.0 48.8 69.9 79.4 90.7 91.5 96.0 43.5

Other work 63.4 55.5 43.2 24.3 d 8.5 7.9 3.6 45.1

Not in workforce 16.8 15.5 8.0 a5.8 d na na 0.4 11.4

 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Principal operator

 retired 23.7 27.5 19.5 11.1 4.1 2.4 *3.0 2.6 20.0

Hours of farm work (for principal operator):

Less than 500 33.0 29.9 12.5 6.2 *5.9 na 0.9 1.1 21.1

500 to 999 36.2 31.9 20.4 11.4 4.8 4.0 *5.1 2.4 24.6

1,000 to 1,499 17.4 18.7 23.4 16.3 9.5 4.9 5.4 4.4 17.1

1,500 to 1,999 4.8 11.7 15.8 14.7 10.1 7.9 6.1 4.5 10.5

2000 or more 8.4 7.7 27.8 51.4 69.7 81.8 82.4 87.7 26.6

 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Family farm 98.7 98.1 97.3 95.3 94.1 93.6 95.5 88.8 97.1

* indicates that coeffi cient of variation (CV) is greater than 25 and less than or equal to 50.

a indicates that CV > 50.

na indicates value is not available due to no observations, an undefi ned statistic, or reliability concerns. 

d means cannot be disclosed due to confi dentiality restrictions.

Source: USDA, Agricultural Resource Management Survey, 2006.
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year, the equivalent of a full-time job (40 hours per week for 50 weeks).7 In 

contrast, almost 1 out of every 2 operators on farms with between $10,000 

and $50,000 in sales considered themselves farmers, with over 40 percent 

spending at least 1,500 hours of labor on the farm. On farms generating 

at least $50,000 in sales, the operator typically considered farming as the 

primary occupation and reported working at least 2,000 hours on the farm 

during the year. 

How much do different households rely on farm income?

Farm households with low levels of agricultural sales tend to report relatively 

high levels of off-farm income. However, households associated with farms 

generating the very highest levels of agricultural sales often generate offfarm income as well.

Operators and their households can generate off-farm income from both 

earned and unearned sources. Earned off-farm income comes from selfemployment or wages and salaries at a job unrelated to the farm. Households 

obtain off-farm unearned income from passive income sources unrelated 

to their farming enterprise, such as Social Security or interest earnings. 

Total household income combines earned and unearned incomes with the 

household’s net income (revenues minus costs) derived from the farming 

operation.8

Farm households selling less than $50,000 worth of agricultural goods had 

mean off-farm income exceeding $70,000, while households of the largest 

farms (those with sales above $250,000) averaged between $50,000 and 

$60,000 in off-farm income (fi g. 4, table 2). More signifi cantly, the share 

of off-farm income from earned sources dropped as farms increased in size. 

The average amount of earned off-farm income for farm households with 

less than $50,000 in sales was almost twice the amount of earned off-farm 

income generated by the households of the largest farms in 2006. This is 

likely due to the fact that as farms grow (both in size and complexity), the 

 7The ARMS questionnaire asks the 

principal operator how many hours, 

on average, the respondent worked 

on the farm per week for each of the 

four quarters of the year (January 

through March, April through June, 

July through September, and October 

through December). Adding up the 

hours per week provided the values 

shown in table 1.

8The ARMS survey contains several 

questions concerning the off-farm 

income of the principal operator. 

Respondents were asked to enter value 

codes representing ranges of income 

that corresponded to the income they 

derived from any sources not affi liated 

with their operation. Midpoints of each 

range were subsequently used for each 

value code to obtain estimates for each 

variable. Earned off-farm income was 

calculated using responses concerning any off-farm businesses of the 

members of the operator’s household 

during the year and from any wages or 

salaries earned from any off-farm jobs. 

Respondents were also asked to enter 

value codes for any unearned income, 

consisting of any passive income 

sources such as interest, dividends, 

Social Security, etc.

Figure 3

Principal operator's reported occupation and labor hours, 2006

 Source: USDA, Agricultural Resource Management Survey, 2006.

<$1,000 $1,000-

$9,999

$10,000-

$49,999

$50,000-

$99,999

$100,000-

$174,999

$175,000-

$249,999

$250,000-

$499,999

$500,000+

Sales class

Percent of operators in the sales class

0

10

20

30

40

50

60

70

80

90

100

Farming is reported occupation

Farm labor hours > 2,000
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operators, and perhaps other household members, have to devote more time 

to running the farm business, leaving less time to earn wages or generate 

revenues off the farm. Reported labor hours in the ARMS data suggest this 

trend as well. As farm size increases from small farms to those producing at 

least $100,000 in sales, operators tend to spend more hours working on the 

farm. Their spouses also appear to increase their on-farm labor as farm size 

increases. Hours spent earning off-farm income decrease steadily for operators, and more slowly for their spouses, as farm size increases.

Households of the largest farms relied more on farm income than did the 

households of smaller farms (fi g. 5, table 2). In fact, more than 58 percent of 

the commercial farm households (those with farms selling $250,000 or more) 

earned at least half of their income from farming. In contrast, a large majority 

of low-sales operators did not rely upon farming for any of their income at 

Figure 4

Off-farm income, 2006

 Source: USDA, Agricultural Resource Management Survey, 2006.

<$1,000 $1,000-

$9,999

$10,000-

$49,999

$50,000-

$99,999

$100,000-

$174,999

$175,000-

$249,999

$250,000-

$499,999

$500,000+

Sales class

Dollars

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

0

10

20

30

40

50

60

70

80

90

Earned income share

Total off-farm income

Percent from earned sources

Figure 5

Household reliance on farm income, 2006

 Source: USDA, Agricultural Resource Management Survey, 2006.

<$1,000 $1,000-

$9,999

$10,000-

$49,999

$50,000-

$99,999

$100,000-

$174,999

$175,000-

$249,999

$250,000-

$499,999

$500,000+

Sales class

Percent of households

0

10

20

30

40

50

60

70

80

90

Losses from farming At least 50 percent of household income from farming
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all. Over two-thirds of farm households with less than $50,000 in agricultural 

sales incurred losses from farming.9 Furthermore, an additional 20 percent of 

farm households in this sales category derived less than one quarter of their 

income from their farming operation.

However, off-farm income does remain important even for those associated 

with commercial farms. More than one in four commercial farm households 

obtained over half of their household income from off-farm sources. Losses 

from farming and negative household income are not uncommon, even for 

operators of the very largest farms. More than one in fi ve farms with at least 

$500,000 in sales either had negative household income or incurred losses 

from farming, as had one-quarter of all farms with sales between $250,000 

and $500,000 in 2006. Bad weather, pests, and diseases can ruin crops and 

sicken livestock, which can dramatically lower gross income. In addition, 

farmers can make voluntary choices that alter their reported gross income. 

Examples include increasing inventories by delaying sales of goods produced 

 9Operators can use depreciation 

expenses to offset income for tax purposes. If high enough, depreciation expenses can cause some farms to claim 

losses from farming during a year, even 

if revenues cover all operating costs. 

In 2006, 18 percent of farms with sales 

between $10,000 and $50,000 had 

depreciation expenses that outweighed 

their revenues, as did 11 percent of 

farms with sales between $1,000 and 

$10,000. Fewer than 1 percent of farms 

with sales below $1,000 had depreciation expenses larger than their net cash 

farm income, which could be due to 

the fact that many of these small farms 

may not qualify as a business for Internal Revenue Service purposes. 

Table 2

Selected fi nancial characteristics of farm households by sales class, 2006 

Sales class

Item

Less 

than 

$1,000

$1,000 

to 

$9,999

$10,000 

to 

$49,999

$50,000 

to 

$99,999

$100,000 

to 

$174,999

$175,000 

to 

$249,999

$250,000 

to 

$499,999

$500,000 

or more All

Number

Total farm households 439,175 739,582 374,663 155,871 98,946 56,191 86,182 71,890 2,022,501

Dollars per household 

Median household

 income 54,835 52,299 53,937 52,038 58,184 65,334 86,228 121,705 54,835

Mean household

 income 68,480 68,171 72,841 69,375 74,163 74,908 103,864 249,815 77,654

 Farm earnings -6,914 -3,529 a-574 7,229 22,361 28,260 43,226 197,666 8,406

 Off-farm income 75,394 71,701 73,416 62,146 51,802 46,647 60,638 52,150 69,248

 Earned 61,480 52,240 51,625 40,484 36,556 30,868 31,143 28,985 50,140

 Unearned 13,915 19,461 21,791 21,662 15,246 15,779 *29,495 23,165 19,109

Percent of households

Positive household income and:

Loss from farming 87.7 66.4 45.8 25.1 16.0 12.6 9.3 5.5 55.4

0-24 percent

 from farming 6.3 24.4 31.5 21.1 14.1 7.9 8.1 5.9 19.2

25-49 percent 

 from farming na 3.3 10.6 19.2 17.7 15.1 13.5 8.6 7.0

50-74 percent 

 from farming na 0.8 3.8 15.1 17.1 22.0 18.8 14.3 5.3

75 percent or more

 from farming na *1.2 3.1 10.3 24.0 28.8 34.1 50.8 7.2

Negative household

 income *3.0 3.9 5.2 9.2 11.0 13.6 16.2 15.0 5.9

 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

* indicates that coeffi cient of variation (CV) is greater than 25 and less than or equal to 50..

a indicates that CV > 50.

na indicates value is not available due to no observations, an undefi ned statistic, or reliability concerns.

Source: USDA, Agricultural Resource Management Survey, 2006.
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and purchasing farm equipment, which increases depreciation and can shield 

income from taxes. 

Acres operated

Despite their low levels of production, farms with less than $50,000 in sales 

accounted for more than one-fourth of the acres operated in the U.S. (fi g. 6, 

table 1). In contrast, farms with sales of at least $250,000 produced the bulk 

of U.S. agricultural output on just over 40 percent of all acres operated. 

Relative to the distribution of sales, acres operated are distributed much more 

evenly across all farm size classes for at least four reasons:

1. Large livestock operations such as feedlots and operations producing 

hogs, dairy products, eggs, or broilers (among other types) tend to 

confi ne their animals and use purchased feed, meaning that many do not 

use much land to produce large volumes of sales.

2. Modestly sized livestock operations often specialize in the production 

of calves, horses, or sheep or goats, and are more likely to graze their 

livestock rather than confi ne them. This requires larger tracts of land per 

head to feed the animals, but does not generate the high levels of revenues and output that higher sales farms generate.

3. Farmland can include Conservation Reserve Program (CRP) acres in 

addition to cropland and pastureland. Operators often enroll entire fi elds 

in CRP, and can own more acres than their limited sales and expenses 

would suggest.10

4. Ownership of land may be the primary goal of many small/medium sized 

farms, rather than farm income.

While acres operated are distributed fairly evenly across sales categories, 

acres owned are distributed more evenly still. In fact, farms with less than 

$10,000 in sales tend to own more land than they operate, choosing to rent a 

Figure 6

Acres operated, 2006

Source: USDA, Agricultural Resource Management Survey, 2006.

<$1,000 $1,000-

$9,999

$10,000-

$49,999

$50,000-

$99,999

$100,000-

$174,999

$175,000-

$249,999

$250,000-

$499,999

$500,000+

Sales class

Percent of U.S. total

0

5

10

15

20

25

0

200

400

600

800

1,000

1,200

Acres per farm (median)

Acres per farm

Percent of total acres

 10For more information on land use, 

see table 1.3.10 of the ERS report 

Agricultural Resources and Environmental Indicators: Land Ownership 

and Farm Structure (July 2002), available at: www. ers.usda.gov/publications/arei/ah722/arei1_3/DBGen.htm/.
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portion of their land to other operations. Farmers of larger operations, generally requiring larger amounts of land for production, often rent land from 

others. On average, farmers with at least $250,000 in sales in 2006 owned 

less than half the land they operated. 

Again, however, aggregate statistics can prove misleading. While aggregate 

acres owned or operated are relatively evenly distributed across farm sales 

classes, the median number of acres operated differs dramatically. Half of 

farms with sales between $10,000 and $50,000 operated fewer than 164 

acres, while half of farms with between $250,000 and $500,000 in agricultural sales operated more than 825 acres. Half of the very largest farms, those 

with $500,000 or more in sales, operated over 1,200 acres.

Government payments

U.S. farm programs can be categorized into two broad groups: commodityrelated and conservation. Commodity payments in particular tend to refl ect 

production volumes for program commodities (largely feed and food grains, 

cotton, and oilseeds). As a result, larger farms producing greater volumes of 

program commodities tend to receive higher levels of commodity payments. 

In 2006, operations generating over $250,000 worth of sales collected the 

bulk of commodity-related government payments. 

Despite increases in working-land program budgets, in 2006 conservation payments consisted mostly of CRP payments—a program designed to 

retire environmentally sensitive cropland from production (see box, “Farm 

Program Payments: Types and Data Source”). Many CRP participants 

enroll a signifi cant portion, if not all, of their cropland into CRP, yet are still 

counted as farms by USDA because government payments are counted as 

farm sales under the farm defi nition. These farms focus on the production of 

environmental benefi ts and have little or no production of farm commodities, 

so the bulk of their farm income comes from CRP payments. As such, operations selling less than $50,000 received most of the conservation-related 

government payments (fi g. 7). 

Overall, farms generating at least $250,000 in sales collected just over 53 

percent of all government payments, while those farms generating less than 

$50,000 in sales collectively received approximately 18 percent. However, 

these smaller operations enrolled almost 65 percent of all the acres enrolled 

in either the CRP or the Wetlands Reserve Program (WRP), both of which 

target environmentally sensitive land rather than production. 
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Farm Program Payments: Types and Data Source

Figure 7

Government payments, 2006

Source: USDA, Agricultural Resource Management Survey, 2006.

<$1,000 $1,000-

$9,999

$10,000-

$49,999

$50,000-

$99,999

$100,000-

$174,999

$175,000-

$249,999

$250,000-

$499,999

$500,000+

Sales class

Percent of U.S. total

0

5

10

15

20

25

30

35

40 Total Conservation Commodity−related

The 2006 Agricultural Resource Management Survey covers:

1. Commodity-related payments. Direct payments, countercyclical payments, loan defi ciency payments, 

marketing loan gains, net value of commodity certifi cates, milk income loss contract payments, 

agricultural disaster payments, and any other State, Federal, and local payments are included.

Goals: Establish price and farm income support, stabilize production, provide a safety net for farmers.

2. Conservation payments. Conservation payments belong to one of two categories:

• Payments from land retirement programs, including the Conservation Reserve Program (CRP), 

Conservation Reserve Enhancement Program (CREP), and Wetlands Reserve Program (WRP). 

Goals: Remove land from agricultural production.

• Payments from working-land programs, including the Environmental Quality Incentives Program 

(EQIP), and Conservation Security Payments (CSP). These programs provide technical and fi nancial assistance to farmers who install or maintain conservation practices on land in production.

Goals: Protect and preserve natural resources including (among other objectives): maintaining and 

improving soil quality, improving wildlife habitat, and improving water and air quality. Additionally, 

conservation programs provide a safety net for farmers and help establish farm income support.

The Agricultural Resource Management Survey (ARMS) allows for analysis of how farm program 

payments are distributed among farms because the survey can identify both participating and nonparticipating farms. Unlike other data sources, ARMS furnishes detailed information on the farms’ characteristics as well as the characteristics of farm operators and their households. Since ARMS contacts only 

farm operators, however, it excludes the payments made to people who do not farm, mainly nonoperator 

landlords. 
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What Kinds of Screens Might Capture 

Active Farming?

The current, broad defi nition of a farm encompasses a very diverse group 

of businesses, where many operators do not allocate large quantities of their 

labor to the farm, and most operations do not generate large amounts of 

output. Some policymakers have recently proposed redefi ning what qualifi es as a farm (Abbott, 2007; Congressional Record, 2007; Good, 2008). The 

proposals defi ne eligibility requirements for a particular government program 

or defi ne eligibility across all government programs. 

While some proposals would restrict the farm defi nition for NASS’s Census 

of Agriculture and for Federal agricultural programs, these can represent 

confl icting goals. A broad defi nition for the Census could be desirable in 

order to capture the bulk of agriculture, while it might be desirable to funnel 

program funds toward a much narrower, targeted population. There may be 

unintended costs if the same population is targeted for both data collection 

and for all program purposes since different considerations may apply to the 

two goals (and to different programs). In each case, the careful identifi cation 

of the desired population becomes important.

Common to the proposals is the view that Federal support of the agricultural 

community should go to those who are actively engaged in farming. Some 

policymakers aim to refi ne the term “actively engaged” to identify more 

precisely the segments of the farm population to which they wish to provide 

support. 

Various screens have been proposed, but to be useful, they need to be easy 

to use and verifi able to facilitate implementation and ensure that the intended 

recipients of any targeted Federal funds are not unintentionally excluded 

from eligibility. The administration of certain programs already requires 

that farmers, to establish their fi nancial history, must supply IRS income 

tax records at State and county offi ces. A similar requirement could be 

used to establish the proposed screens examined here.11 For example, IRS 

Schedule F, titled “Profi t or Loss From Farming,” (fi led by sole proprietorships) contains information on agricultural sales and expenses (fi g. 8), and 

when combined with information on other tax forms (for example, U.S. 

Individual Income Tax Returns contain off-farm income information), can 

provide a measure of the relative importance of off-farm income to the 

household.12 County offi ce program managers could require farmers to bring 

in their fi led tax forms to help determine a farmer’s active engagement in 

agriculture. Possible screens that make use of information readily available 

from tax forms include farm sales, the share of income from farming, and 

off-farm income streams.13 A screen such as farmer occupation and/or labor 

allocation, despite being a convenient way to categorize farmers that closely 

approximates the ideas behind the defi nition of “actively engaged,” is selfreported and therefore not easily verifi able by program managers, reducing 

their value for program targeting purposes.

 11USDA’s Farm Service Agency 

(FSA) requires that farmers supply 

their last 3 years of farm fi nancial records, including tax returns, to qualify 

for a loan (see Handbook 3-FLP page 

3-6). Furthermore, tax returns are 

used to screen for beginning farmers, 

limited-resource farmers, and for offfarm income.

 12Similarly, if a farm is organized 

as a partnership rather than a sole proprietorship, IRS Form 1065 would be 

appropriate. IRS Form 1120 and 1120S 

pertain to a farm organized as a C- or 

S-corporation respectively.

13Note that tax rules may distort 

some of what policymakers or program 

managers wish to measure. For example, rules concerning cash accounting, capital expensing, and other farm 

deductions may reduce net incomes for 

tax purposes (Durst and Monke, 2001).
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Figure 8

IRS Schedule F, Profi t or Loss From Farming, page 1
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Farm Sales

One way to measure active engagement in agriculture is to examine the level 

of sales during the year. Generally speaking, those with high levels of sales 

are more likely to be heavily involved in farming than those with low sales. 

Exceptions do exist, though, especially among those considered beginning, 

limited-resource, or socially disadvantaged farmers.14 USDA actively works 

to provide assistance to farmers in these classes to promote equity. If a farm 

sales screen were adopted, the typical sales generated from farms run by 

beginning, limited-resource, or socially disadvantaged farmers could easily 

disqualify them from receiving Federal support.

According to 2006 ARMS data, operations selling at least $10,000 worth of 

agricultural products accounted for a little over 42 percent of all U.S. farms, 

98.5 percent of all agricultural sales, and received 93 percent of all government payments. Nearly 75 percent of farms with operators who allocate at 

least 1,500 hours to the farm produce sales of at least $10,000. In contrast, 

approximately one out of every four operations with either a socially disadvantaged operator or limited-resource operator generates sales above $10,000 

(table 3). Using a higher cutoff (operations with at least $50,000 in sales), 

while accounting for only 24 percent of farms, still captures an estimated 

94 percent of all agricultural sales and nearly 82 percent of all government 

payments in 2006. However, this higher cutoff only captured about half of all 

operations where the principal operator spent at least 1,500 hours on the farm 

and included less than 6 percent of operations run by limited-resource and 

just over 11 percent of the farms run by socially disadvantaged operators.

 14A beginning operator has fewer 

than 10 years’ experience running a 

farm. A socially disadvantaged operator is either female and/or belongs to 

one of the following groups: African 

Americans, American Indians, Alaskan 

natives (Native Americans), Hispanics, 

Asian Americans, or Pacifi c Islanders. 

Finally, a limited-resource operator 

must have earned less than $115,600 

(2006 dollars) and had household income below the national poverty level 

for a family of four, or the household 

income was below the county median 

household income in the previous 2 

years.

Table 3

U.S. farms included in each proposed statistical screen, 2006

Screen 1: 

Sales

Screen 2: 

Off-farm income as a share of 

household income

Screen 3: 

Off-farm income

$10,000 or 

more

$50,000 or 

more

< 50 percent < 25 percent < $100,000 < $50,000

Percent

All U.S. farms 42.7 24.0 12.5 7.2 81.7 47.2

Farms run by operator who 

 allocates at least 1,500

 hours of labor to farm 73.0 51.0 24.3 15.3 87.5 60.1

Farms run by beginning 

 operators1 d d 6.1 1.1 66.0 6.2

Farms run by limited-resource

 operators2 25.1 5.6 7.2 5.7 99.8 99.2

Farms run by socially 

 disadvantaged operators3 27.2 11.1 7.5 3.4 81.5 50.5

1A farm is classifi ed as being run by a beginning operator(s) if the operator(s)—up to 3—each have less than 10 years’ experience. 2A farm is classifi ed as being run by a limited-resource operator if in each of the last 2 years gross farm sales were below $115,600 (in 2006 

dollars) and either had household income below the national poverty level for a family of four or had household income below the county median household income in the 2 previous years.

3A farm is classifi ed as being run by a socially disadvantaged operator if the operator belongs to any of the following groups: females, African 

Americans, American Indians, Alaskan natives (Native Americans), Hispanics, Asian Americans, or Pacifi c Islanders. 

Note: d means cannot be disclosed due to confi dentiality restrictions.

Source: USDA, Agricultural Resource Management Survey, 2006.
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While a “farm sales” screen may be useful as a rough gauge for involvement 

and is easily implemented, it has drawbacks. A small but substantial number 

of actively engaged farm households with production or investment but no 

sales (e.g., orchards) would be screened out. For example, an estimated 7 

percent of all point farms in 2006 (approximately 31,000 farms) had little or 

no sales yet produced goods valued between $1,000 and $10,000. Moreover, 

a further estimated 1,645 farms with few, if any, sales produced goods valued 

above $10,000.15

A sales screen can be used for several purposes. It can be used as a screen 

that can help refi ne the actively engaged standard adopted in the 2008 Farm 

Act to help target Federal monies to the farm population. It is also currently 

(and has been historically) the backbone of the USDA farm defi nition. If a 

sales screen above $1,000 were implemented, it could affect how Federal 

funds are disbursed for programs such as Federal land-grant universities for 

research and dissemination of information as established through the Hatch 

Act of 1887, and Cooperative Extension services established through the 

Smith-Lever Act of 1914. USDA’s Natural Resources Conservation Service 

(NRCS) currently distributes funds to States based on farm-population counts 

to its Conservation Technical Assistance (CTA) program, and formulas 

for fi scal year 2009 include farm-population counts for the Agricultural 

Management Assistance and EQIP programs. Similarly, USDA’s Farm 

Service Agency (FSA) allocates funds across States primarily using the 

number of farmers in each State for its loan programs, including Direct Farm 

loans (Farm Ownership and Operating Loans), Emergency Farm loans, and 

Beginning Farmers and Ranchers loans. 

For nearly half of the States in the Nation, using a farm defi nition based on 

$10,000 in sales would induce less than a 0.2-percent change in their share 

of farms. However, some States would experience much larger changes, 

with implications for the amount of Federal funds available to them for 

certain programs (fi g. 9). For example, Texas and Tennessee would each 

see their share of U.S. farms drop by just over 3 percent and more than 1.5 

percent, respectively. By contrast, Iowa would fi nd its share increased by 

over 2 percent, while Nebraska, Illinois, and California would all experience 

increases in their share of farms by more than 1 percent.

Some Federal programs also use the State shares of farm population to 

distribute funds in a similar fashion to that used with the State share of farm 

numbers. Very similar, although not identical, results follow from using the 

farm population instead of number of farms. Over half of the States in the 

Nation would experience changes in their share of farm population of more 

than 0.2 percent. Texas and Tennessee would lose almost 2 percent and just 

over 1 percent, respectively. Iowa would gain the largest share, at almost 2 

percent of the farm population, while Minnesota, Nebraska, and Wisconsin 

would all experience increases greater than 1 percent in their relative share of 

the farming population (fi g. 10). 

 15The value of production of goods 

can be estimated “as if” the goods were 

sold in the market (using market prices 

and production quantities). Sales, however, refer to what actually was sold in 

the marketplace. The value of production and sales can differ for several 

reasons. For example, an operator can 

produce grain, but store it rather than 

sell it during the reference year, or sell 

grain out of inventory that was actually 

produced in previous years. 
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Share of Income From Farming

If policymakers are concerned about sending Federal funds to operators not 

actively engaged in farming, one option is to make those operators who do 

not think of themselves primarily as farmers and do not devote many hours 

to farming ineligible for payments. However, occupation title and labor hours 

are self-reported and therefore cannot be easily verifi ed.

Household income, on the other hand, can be checked using Federal tax 

forms. Therefore, the importance of farm income to the overall household 

income of the operator has been proposed as an alternative way to measure 

active engagement. 

Using a screen based on the share of household income from farming, 

however, may be a poor proxy for the level of involvement in farming, and 

could exclude a substantial portion of U.S. production. For example, only 

Figure 9

The effect of changing the farm definition on State shares of all U.S farms

Source: ERS calculations based on USDA, National Agricultural Statistics Service, Farms, Land in Farms, and Livestock Operations,

February 2008.

Change in share

IA

NE IL CA MN SD ND KS WI MT IN NY

NC NM PA LA OR GA VA OK SC AL KY WV MS

TN

TX

-4

-3

-2

-1

0

1

2

3 The chart shows the change in a State's share of U.S. farms if farms 

were defined with a $10,000 instead of a $1,000 cutoff. Only States 

with a change of at least 0.2 percentage points are shown.

Figure 10

The effect of changing the farm definition on State shares of the U.S. farm population 

Source: ERS calculations based on U.S. Department of Commerce, U.S. Census Bureau, 2000 Census of Population.

Change in share

The chart shows how State shares of the U.S. farm population would 

change if farms were defined with a $10,000 instead of a $1,000 cutoff. 

Only States with a change of at least 0.2 percentage points are shown.

IA

MN NE WI

SD ND CA PA IL MT NY

LA VA MO GA MS IN WV FL MI NC AL OK OH

KY TN

TX

-2.5

-1.5

-0.5

0

0.5

1.5

2.5
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7 percent of all farm households derived at least three-quarters of their 

income from farming, while generating about one-third of all farm sales 

(table 2). Collectively, these households received 28 percent of all government payments. This screen would capture almost 16 percent of those operations where the operator allocated at least 1,500 hours of labor to the farm, 

1 percent of all beginning farmers, approximately 6 percent of all limitedresource operations, and less than 4 percent of farms run by those operators 

considered socially disadvantaged.

Reducing the threshold to those households that generated at least half of 

their income from farming does not radically alter the picture. Only 12 

percent of all farm households generated at least half of their income from 

farming. This includes almost 1 out of every 4 farms with operators who 

spend at least 1,500 hours on the farm, as well as 6 percent of all beginning 

farmers, and just over 7 percent of all farms run by limited-resource and 

socially disadvantaged operators (table 3). As a group, farms operated by 

households earning more than half of their income from farming produced 

less than half of all U.S. agricultural sales and received 41 percent of all 

government payments in 2006.

Many farm households that would appear to be actively engaged in farming 

by most standards would not be considered active using a screen that 

required that at least 50 percent of their income come from farming. In large 

part, this has to do with the complex interplay between actual production and 

what the farm household claims as income. A household may have a reduced 

(and even negative) share of income from farming for several reasons. For 

some, operating expenses could have been unexpectedly high. For others, 

decisions to increase their inventories rather than sell their goods could have 

reduced their revenues. Still others may have made recent substantial investments in capital equipment that could allow them to report signifi cant capital 

depreciation expenses, reducing their net taxable income from farming.

This issue becomes even more transparent if we focus on only the very 

largest farms, those with at least $500,000 in sales. About one in fi ve farms 

selling at least $500,000 of agricultural products incurred losses during 

2006, which would immediately disqualify the households associated with 

them from being considered actively engaged in farming using the “share 

of income” screen, despite the fact that they generated a large volume of 

sales during the year (table 2). Another 15 percent of these households had 

positive household income but derived more than half of their income from 

off-farm sources. Overall, using a “50 percent of income from farming” 

screen, 35 percent of the very largest farm households would be considered 

not actively engaged in farming. This pattern is not restricted to just the 

very largest farms; using the “50 percent of income from farming” screen, 

the households of almost half of all farms with sales between $175,000 and 

$500,000 would also be considered not actively engaged in farming. If such 

a screen were applied, a large number of farm households representing a 

signifi cant portion of total U.S. agricultural output would become ineligible 

for farm program funds. 

Additionally, if a “percent of income from farming sources” screen were 

used, it might discourage farm households from diversifying into nonfarm 

activities. Such disincentives could imperil the overall success of the farm 
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and nearby communities, especially rural communities with a large number 

of farm households.

Off-Farm Income

A third type of screen, “level of off-farm income,” has been proposed to try 

to exclude individuals with high off-farm income from receiving Federal 

funding. While this type of screen directly assesses the individual’s need for 

assistance (if off-farm income is very high, presumably the individual would 

not require Federal assistance), it also can proxy for level of engagement in 

agriculture. Generating earned off-farm income requires spending time in 

nonagricultural pursuits and, in general, the higher the off-farm income, the 

less time is available for the farm operation. 

Self-reported occupation status can provide a rough proxy for how the 

operator chooses to spend time, either in on- or off-farm pursuits. Less than 

one in four farmers with off-farm income greater than $100,000 considered 

farming as their primary occupation. By contrast, 78 percent of those earning 

below $10,000 in off-farm income and one out of every two operators generating between $10,000 and $50,000 in off-farm income considered themselves farmers. 

Operators of farms with sales of at least $100,000 are more likely to be 

considered actively engaged in farming than farmers of smaller operations. 

Households of farms that generate sales of $100,000 or more also earn an 

approximate mean off-farm income of $50,000. If an off-farm income screen 

of $50,000 were used in 2006, operations where households earned less than 

$50,000 in off-farm income accounted for nearly 48 percent of all farms, 

generated 73 percent of all sales, and received 70 percent of all government 

payments. This included more than 60 percent of all farms where the operator worked at least 1,500 hours on the farm, but only 6 percent of all beginning farmers. It also included over 99 percent of all limited-resource farmers 

and just over half of all socially disadvantaged farmers (table 3). If the screen 

were set to exclude only those who generated more than $100,000 in offfarm income, in 2006 this would have excluded the households of 18 percent 

of all farms that generated 10 percent of agricultural sales and received 12 

percent of all government payments.

Of the farms run by operators who allocated at least 1,500 labor hours to the 

farm, nearly 88 percent would be captured using the higher valued screen of 

$100,000. This elevated screen also captured almost two-thirds of all beginning operators, virtually all limited-resource operators, and more than 80 

percent of all farms run by socially disadvantaged operators. Finally, those 

households generating at least $250,000 in off-farm income represented 

only 2 percent of all farms and generated only 2 percent of all sales, while 

collecting only 2 percent of all government payments. At the higher off-farm 

income cutoffs, few farm households are excluded, while at lower off-farm 

income cutoffs, substantial levels of production are excluded (over onequarter of all production is excluded at the $50,000 cutoff), implying that, 

at the $50,000 cutoff, some farm households with signifi cant agricultural 

activity would be excluded from Federal programs. 
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The 2008 Farm Act includes an off-farm income screen to limit Federal 

payments to those who earned more than $500,000 in average adjustable 

gross nonfarm income. Very few farm households earned such large amounts 

of off-farm income. 

Self-reported employment categories do not necessarily capture engagement in farming. Most farmers who earned low off-farm income in 2006 did 

consider themselves farmers and appeared to be actively engaged in farming. 

However, a full 14 percent of farmers earning less than $1,000 in off-farm 

income considered their occupation something other than farming, while 

another 11 percent stated that they were not in the paid workforce. An additional 6 percent of operators whose households earned between $1,000 and 

$10,000 in off-farm income, and 30 percent of operators whose households 

earned between $10,000 and $50,000 in off-farm income did not consider 

themselves farmers when asked their occupation in 2006. In other words, 

despite earning relatively low levels of off-farm income, a large number of 

households may still not be actively engaged in farming. Policymakers and 

program managers using such a screen may continue to fail to target their 

intended recipients with Federal program funds. Additionally, an off-farm 

income screen might create incentives for farmers to hide off-farm income to 

become eligible for Federal funding. 

While all of the three screens (sales, the portion of total household income 

coming from off-farm sources, and total off-farm income) would be relatively easy to implement, the drawbacks associated with them imply that care 

needs to be taken to ensure that those designated as “actively engaged” do, 

in fact, match policymakers’ intended recipients. Additionally, these screens 

may not work well if program goals include issues such as environmental 

improvement or help for beginning farmers rather than just ensuring that 

Federal assistance accrues to those who are actively engaged in agriculture. 

Alternative program goals may require targeting users of land and water 

resources or a more thorough examination of farming activity.

Another key concern is how the screens might affect family farms, an integral part of our Nation’s agricultural sector. Part of the diffi culty assessing 

such a concern stems from the lack of a widely held, precise defi nition of a 

family farm. There are many ways to defi ne a family farm, and various organizations within the United States defi ne them differently. 

Family Farm Defi nitions

The family farm has long held a dominant place in U.S. agriculture. According 

to ERS, most production occurs on family farms. Some USDA programs are 

designed explicitly to support and encourage the growth of family farms, such 

as the Direct Operating Loans, Direct Ownership Loans, and Emergency Farm 

Loans administered by FSA.16 Additionally, some observers have argued that 

the family organization of farms has been an important reason for the superior 

performance of U.S. agriculture (Gardner, 2002). 

Despite their central role in farm policy, legislators have not formally defi ned 

family farms, and various institutions, organizations, and researchers employ 

different defi nitions of a family farm. Many equate family farms with small, 

limited production farms, while associating the larger farms that generate 

 16FSA defi nes family farms differently than ERS. Under FSA’s defi nition, in addition to making the business 

decisions, the family must be recognized by the community as running a 

farm and the farm must produce goods 

in suffi cient quantities so that it is 

recognized as a farm rather than a rural 

residence. Furthermore, the amount 

of labor provided to the farm must be 

signifi cant and provided mostly by the 

family. 
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the bulk of production with corporate, nonfamily interests. “The legendary 

‘family farm’ is largely as quaint as Grant Wood’s 1930 painting, ‘American 

Gothic.’ While mom-and-pop farms remain, most U.S. agriculture involves 

corporate mega-farms rather than pitchforks, barns and overalls,” Deroy 

Murdock of Scripps News noted (Murdock, 2008).

Other observers have weighed in with similar outlooks. “Federal farm policies specifi cally bypass family farmers,” Heritage Foundation budget analyst 

Brian Riedl noted in 2007. He also stated, “Subsidies are paid per acre, so the 

largest (and most profi table) agribusinesses automatically receive the biggest 

checks,” and agricultural government payments amount to the “largest 

corporate welfare program maintained by the Federal Government” (Riedl, 

2007; Riedl, 2002). Similarly, Ryan Alexander, president of Taxpayers 

for Common Sense, said, “Family farms are really getting peanuts under 

the current system, while corporate agriculture is living high on the hog.” 

(Groppe, 2007).

As a result of the many defi nitions surrounding family farms, public perceptions of the family farm remain rather vague. In contrast, ERS defi nes a 

family farm rather specifi cally—operator ownership and control determine 

family farm status. ERS designates a family farm as any farm where the 

operator, and individuals related to the operator by blood, marriage, or adoption, own more than 50 percent of the business. 

The ERS defi nition captures a very broad range of farms. An operator who 

owns the entire farm business clearly qualifi es as a family farm. However, 

an operator whose family owns 51 percent of the farm business also qualifi es 

under the ERS defi nition, even though the operator may choose to incorporate and fi nd investors.17 ERS’s defi nition of family farms includes sole 

proprietorships, partnerships, and even corporations, as long as the principal 

operator’s family owns more than half of the farm business. Only farms with 

ownership that is separate from management (a hired manager runs the farm), 

partnerships and cooperatives among unrelated people, and operations organized as estates, trusts, grazing associations, and corporations with dispersed 

ownership do not qualify as family farms. 

In 2006, ERS identifi ed 97 percent of all farms in the U.S. as family farms, 

including 92 percent of farms with agricultural sales of $250,000 or more. 

These farms generated 84 percent of total U.S. agricultural sales. Nonfamily 

farms accounted for only 1 to 11 percent of U.S. farms, depending on the 

sales class (fi g. 11, table 1). 

It is not surprising that almost all U.S. farms qualify as family farms. The 

Small Business Administration identifi es over 97 percent of all U.S. fi rms as 

small businesses (defi ned as businesses with less than $750,000 in sales in a 

year). Overall, families run most small businesses in the United States.

Alternative Family Farm Criteria

To defi ne a family farm, ERS requires that the operator’s family own more 

than 50 percent of the business. ARMS also collects data on whether the 

principal operator’s household (those living in the operator’s housing unit) 

 17Ownership of the farm does not 

require ownership of land or, for that 

matter, any inputs to production. The 

owner of the farm is the individual 

(or set of individuals) who receives 

the gains (or incurs the losses) from 

the farm business after paying for the 

factors of production (land, equipment, 

labor, etc.).
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owns the entire business. This information is used to gauge how sensitive the 

farm coverage is to variation in share of ownership of the family farm.

Other groups use alternative defi nitions of the family farm, often imposing 

explicit or implicit size constraints. The National Family Farm Coalition 

requires that “the family provides the vast majority of labor and management 

decisions.”18 The Ohio Family Farm Coalition calls for “the farm’s ownership, assets, management, and major decisions [to be] controlled by at least 

one family member on the farm.”19 Researchers have weighed in with their 

own defi nitions. Daniel Sumner proposed that either the operator generate 

a signifi cant portion of household income or that the operator’s primary 

occupation lie in the agricultural sector, while no more than three extended 

families can run the operation and the farm must provide at least half-time 

employment for an individual (Sumner, 1985). Breimyer and Frederick 

(1981) required that a family farm must supply more labor than it hires, must 

own some of the land operated, and cannot employ production contracts, 

since they limit managerial discretion.20 Finally, World Hunger Year 

(WHY), an organization with the stated aim of fi ghting hunger and poverty, 

requires that a family farm operate fewer than 1,000 acres and not qualify as 

a confi ned animal feeding operation (CAFO).21 Overall, three criteria appear 

consistently in these alternative defi nitions of the family farm: labor, land 

ownership, and size restrictions.

ERS’s family farm defi nition can be compared with the defi nition that states 

the operator’s household must own 100 percent of the business. In addition, 

by imposing household labor supply restrictions, land ownership requirements, and explicit size limitations, we can explore how the ERS classifi cation of farms and sales into either family or nonfamily farms would 

be altered (table 4, fi g. 12). The proposed screens (sales, off-farm income 

share of total household income, and off-farm income screens) can then be 

compared with the various family farm defi nitions to explore the screens’ 

coverage of family farms.

Figure 11

How many farms were nonfamily farms in 2006?

 Source: USDA, Agricultural Resource Management Survey, 2006.

<$1,000 $1,000-

$9,999

$10,000-

$49,999

$50,000-

$99,999

$100,000-

$174,999

$175,000-

$249,999

$250,000-

$499,999

$500,000+

Sales class

Percent of sales class

0

2

4

6

8

10

12

According to the ERS definition, very few farms qualify as nonfamily farms, ranging 

from roughly 1 percent of the smallest farms to approximately 11 percent of the largest.

 18For more details on the National 

Family Farm Coalition, see http://www.

nffc.net/learn/page-learn.html.

19For the Ohio Family Farm Coalition statement, see http://www.geocities.com/RainForest/2727.

20For more details, see http://extension.missouri.edu/xplor/agguides/agecon/g00820.htm. 

21For more details, see http://www.

yhunger.org/programs/fslc/topics/

family-farms.html. 
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If the principal operator’s household must own the entire farm business to 

qualify as a family farm, the percent of all farms defi ned as family farms 

would drop from 97 percent to 89 percent, inducing a 24-percentage-point 

shift in sales of all agricultural goods from family to nonfamily farms in 2006. 

As farm size increases, fewer farm households own the entire operation. 

Under some of the defi nitions noted previously, the operator and the spouse 

must provide at least half the labor on a farm for the farm to be considered 

a family farm. This would place strict limits on the size of labor-intensive 

operations (e.g., fruit and vegetable farms and some livestock operations 

such as dairies and hog operations). As a result, such labor restrictions 

Table 4

Family farms defi ned under different criteria, 2006

Farms, sales,

and criteria

More than 50 percent held 

by operator & relatives

(ERS defi nition)

100 percent held by operator & household

(Alternative defi nition)

Number

Total farms 2,083,674 2,083,674

Percent

Ownership criteria alone—

Farms:

Family farm 97.1 89.1

Nonfamily farm 2.9 10.9

Sales:

Family farm 84.0 60.1

Nonfamily farm 16.0 39.9

Ownership criteria and operator and spouse provide half the labor—

Farms:

Family farm 87.4 82.1

Nonfamily farm 12.6 17.9

Sales:

Family farm 44.1 38.7

Nonfamily farm 55.9 61.3

Ownership criteria and operator owns at least 75 percent of acres operated— 

Farms:

Family farm 68.7 63.8

Nonfamily farm 31.3 36.2

Sales:

Family farm 34.9 24.9

Nonfamily farm 65.1 75.1

Ownership criteria and 1,000-acre farms and/or CAFOs1 are excluded—

Farms:

Family farm 88.9 82.8

Nonfamily 11.1 17.2

Sales:

Family farm 41.5 33.7

Nonfamily 58.5 66.3

1 CAFO = confi ned animal feeding operation

Source: USDA, Agricultural Resource Management Survey, 2006.
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would focus heavily on smaller farms, inducing a substantial drop in both 

the number of farms qualifying as family farms and the sales generated by 

family farms. The ERS defi nition combined with this labor criterion means 

that roughly 87 percent of all farms would qualify as family farms. In 2006, 

those farms generated an estimated 44 percent of all U.S. agricultural sales. 

Comparable, but slightly steeper, drops occur using the alternative defi nition 

(100-percent ownership of farm by the operator’s household) combined with 

this labor criterion. 

Land-ownership restrictions constrain the size of the family farm under some 

defi nitions—not many families with very large farms own all of the land they 

farm, nor would it necessarily be wise to pursue such an undiversifi ed investment strategy. Families associated with smaller operations often own more of 

their land and tend to rent land to, rather than from, others. Younger farmers, 

particularly those involved in growing fi eld crops, would be penalized by 

such land-ownership restrictions as they are less likely to have accumulated 

enough wealth to purchase costly farmland and often rent most, if not all, of 

the land they operate. 

If a farm operator’s household must own at least 75 percent of the land it 

operates and 50 percent of the farm business to qualify as a family farm, 

roughly 69 percent of farms in the country would be classifi ed as family 

farms, generating one-third of all agricultural sales. Using the more strin0

20 

40 

60 

80

100

Farms Sales Farms Sales 

0 

20 

40 

60 

80 

100

Farms Sales Farms Sales

Ownership criteria alone... ...and operator and spouse

provide half of all labor

...and household owns at least 

75 percent of all acres operated

...and farm is not a CAFO1

 and/or

operates less than 1,000 acres

more than 50 percent ownership 

(ERS definition)

100 percent ownership

(alternative definition)

1

CAFO = confined animal feeding operation.

The first definition requires that the principal operator and family (related by blood) own 

more than half of the farm. The second definition requires that the principal operator’s 

household owns 100% of the farm business.

Source: USDA, Agricultural Resource Management Survey, 2006.

Figure 12

Family farms defined under different criteria, 2006
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gent business ownership criterion (the household owns the entire operation) 

combined with the land-ownership criterion, family farms would make up an 

estimated 64 percent of all U.S. farms and would generate one-quarter of all 

agricultural sales. 

These last two defi nitions strongly, yet implicitly, focus attention on smaller 

farms. The next defi nition explicitly introduces size constraints by restricting 

family farms from operating 1,000 acres or more and eliminates any farm 

that qualifi es as a confi ned animal feeding operation (CAFO).22 ARMS does 

not collect much of the information required to identify CAFOs.23 A farm is 

therefore conservatively defi ned as a CAFO if it has at least 700 milk cows, 

2,000 cattle, 10,000 hogs, or 125,000 birds.

Under the ERS defi nition, combined with the 1,000 acres and/or CAFO 

restriction, almost 90 percent of all U.S. farms still qualify as family farms, 

but these farms only generate approximately 40 percent of total U.S. agricultural sales. Under the alternative defi nition (the household owns the entire 

business) combined with the size and CAFO criteria, an estimated 83 percent 

of farms qualifi ed as family farms, producing just over one-third of all agricultural sales. While adding explicit size limits to the family farm defi nition 

does not reclassify many farms as nonfamily farms, the largest farms in terms 

of total production become classifi ed as nonfamily farms, indicating that this 

screen assigns a much larger share of production to nonfamily farms. 

The Screens and Family Farm Defi nitions

Given the central place that family farms hold in U.S. farm policy, how would 

they fare under the “actively engaged” screens discussed previously? The 

different family farm defi nitions explored give rise to different distributions 

of family versus nonfamily farms (table 4). Considering the labor, land, and 

CAFO defi nitions along with the various proposed screens aimed at establishing Federal aid eligibility provides an idea of how the family farm, as 

perceived by various groups, would fare under the different screens (table 5).

If a farm business needed at least $10,000 of agricultural sales to receive 

Federal assistance in 2006, 43 percent of all U.S. farms would have been 

eligible for payments, generating 98.5 percent of all U.S. agricultural sales. 

An estimated 41 percent of all U.S. farms would have qualifi ed as family 

farms eligible for Federal assistance, generating over 83 percent of all U.S. 

agricultural sales. Signifi cant reclassifi cations of farms, and especially the 

associated sales, take place using the other defi nitions of a family farm. 

Using both the labor defi nition and CAFO defi nition, the result would have 

meant approximately one-third of all farms qualifi ed for Federal assistance 

as family farms, generating between 40 and 42 percent of all U.S. agricultural sales. The land defi nition would have the largest impact on the 

family–nonfamily farm split, classifying roughly 21 percent of all farms as 

family farms eligible for Federal assistance, generating just over one-third 

of all U.S. agricultural sales. If the sales screen were raised to $50,000, a 

large percentage of family farms with small sales would become ineligible 

for farm payments, while those remaining eligible (family and nonfamily 

combined) would have still produced more than 94 percent of all U.S. agricultural sales in 2006.

 22To qualify as a confi ned animal 

feeding operation (CAFO), an operation must confi ne animals in an area 

with no vegetation for at least 45 days 

in a 12-month period. Sheer numbers 

determine if an operation qualifi es as a 

large CAFO. Medium CAFOs confi ne 

fewer head of livestock, but to be designated as such, must also have either 

a manmade conveyance to surface 

waters or a stream running through the 

confi nement area that could allow pollutants to contaminate surface waters. 

Small CAFOs, by contrast, must be 

designated as such by the permitting 

authority.

23For example, ARMS does not 

collect information on the number of 

days livestock are confi ned, the manure 

system in place, or livestock weights, 

etc. 
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If program eligibility required 50 percent or more of total household income 

to be generated on the farm, almost 21 percent of all farms—accounting for 

over three-quarters of all agricultural sales—would have qualifi ed for Federal 

aid in 2006. While roughly 13 to 18 percent of all farms would have qualifi ed 

as eligible family farms using either the ERS, the labor, or the CAFO defi nition of a family farm, the percent of sales generated by eligible family farms 

under these alternative defi nitions differs widely. Under the ERS defi nition, 

60 percent of all U.S. agricultural sales would have been from eligible family 

farms in 2006, while the production of eligible family farms under the labor 

and CAFO defi nitions would have accounted for roughly one-quarter of all 

U.S. agricultural sales. Again, the land defi nition has the most pronounced 

effects, with nearly 9 percent of all farms as family farms that obtained at 

least half of their income from the farm business, producing roughly 23 

percent of all U.S. agricultural sales. Increasing the amount of income that 

must come from the farm to 75 percent of total household income would 

have small effects, especially for nonfamily farms, with the land defi nition 

classifying the fewest as eligible family farms.

Table 5

Percent of U.S. farms (percent of U.S. sales) by farm type, family farm defi nition, and statistical screen, 

United States, 2006

Sales Off-farm income as share of 

total household income Off-farm income

Screen Nonfamily 

Farms

Family 

Farms

Screen Nonfamily 

Farms

Family 

Farms

Screen Nonfamily 

Farms

Family 

Farms

ERS defi nition - Owned and operated by family members

Percent

$10,000 

or more

2.0

(15.4)

40.7

(83.1)

< 50 

percent

2.9

(15.3)

17.7

(60.0)

< $100,000 2.9

(15.3)

79.1

(74.0)

$50,000 

or more

1.5

(15.3)

22.5

(79.1)

< 25 

percent

2.9

(15.3)

12.6

(48.2)

< $50,000 2.9

(15.3)

45.3

(58.2)

Labor defi nition – Operator and spouse provide at least half of labor on farm

$10,000 

or more

8.6

(55.8)

34.1

(42.7)

< 50 

percent

6.4

(48.0)

14.2

(27.3)

< $100,000 10.1

(49.5)

71.9

(39.5)

$50,000 

or more

6.6

(55.4)

17.4

(39.0)

< 25

percent

5.6

(43.1)

9.9

(20.4)

< $50,000 7.5

(43.0)

40.7

(30.2)

Land defi nition – Operator owns at least 75 percent of operated acres

$10,000 

or more

21.8

(64.9)

20.9

(33.6)

< 50 

percent

11.8

(51.9)

8.8

(23.4)

< $100,000 27.4

(59.5)

54.6

(29.5)

$50,000 

or more

14.8

(63.3)

9.2

(31.1)

< 25 

percent

9.1

(44.4)

6.4

(19.1)

< $50,000 18.2

(49.9)

30.0

(23.3)

CAFO defi nition – Farm is not a confi ned animal feeding operation (CAFO) and has < 1,000 acres

$10,000 

or more

9.9

(58.4)

32.8

(40.1)

< 50 

percent

7.7

(50.5)

12.9

(24.8)

< $100,000 10.0

(53.4)

72.0

(35.6)

$50,000 

or more

8.4

(58.0)

15.6

(36.4)

< 25 

percent

6.4

(44.8)

9.1

(18.7)

< $50,000 8.1

(46.4)

40.1

(26.8)

Note: ERS defi nition of a family farm requiring family ownership and control of the operation underlies each family farm defi nition outlined 

above. For example, the labor defi nition (the operator and spouse provide at least half of labor on the farm) is in addition to requiring that more 

than 50 percent of the farm business is owned by those related through blood, marriage, or adoption to the principal operator. Land and CAFO 

defi nitions are similar. 

Source: USDA, Agricultural Resource Management Survey, 2006.
29

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Finally, if Federal aid eligibility required that the farm household generate 

less than $100,000 in off-farm income, 82 percent of all U.S. farms would 

have qualifi ed for assistance in 2006. But again, the split between family 

and nonfamily farms varies considerably depending on the defi nition of a 

family farm. Under this screen, the labor and the CAFO defi nitions reclassify 

a relatively few, larger farms as nonfamily farms. While between 70 and 80 

percent of all farms would have remained family farms eligible for aid under 

the ERS, labor, and CAFO defi nitions, the ERS defi nition classifi es roughly 

three-quarters of all sales as coming from eligible family farms, while the 

labor and CAFO defi nitions attributed between 36 and 40 percent of all U.S. 

agricultural sales to eligible family farms. The land defi nition again appears 

the strictest, categorizing nearly 55 percent of farms as eligible family farms 

that produced roughly 30 percent of all U.S. agricultural sales. Decreasing the 

level of off-farm income to less than $50,000 causes roughly an additional 

one third of all U.S. farms to become ineligible for Federal programs. Despite 

this drop in eligibility, those eligible (both nonfamily and family farms) for 

aid under the land defi nition still generate nearly 75 percent of all sales. 

Alternative defi nitions of the family farm place some implicit or explicit 

limits on farm size, which can substantially reclassify farms, and especially 

sales, from family to nonfamily farms. The land defi nition appears to be the 

strictest, resulting in large shifts of both farms and reported sales from family 

to nonfamily farms. Although the labor and CAFO defi nitions have much 

more modest shifts in numbers of farms, the shifts in sales between family 

and nonfamily farms remain substantial.

While alternative defi nitions of the family farm can reclassify substantial 

numbers of farms and sales between family and nonfamily farms, a small 

number of farms would not meet any defi nition of a family farm. Most 

of these operations tend to be partnerships and closely held corporations 

with unrelated owners. A few nonfamily farms qualify as the mega-farms 

mentioned by Murdock. These farms generate very large revenues across 

many agricultural industries.

For example, Smithfi eld Foods, the world’s largest hog producer and pork 

processor, generated total revenues close to $12 billion in 2007. Del Monte 

generated over $3 billion in net sales in 2006 producing, among other goods, 

fresh and processed fruits and vegetables. Alico, Inc., another large corporation, produces, among other goods, citrus, sugarcane, and cattle in Florida, 

generating over $77 million in total revenues in 2006. While corporate 

farms make up a relatively small share of nonfamily farms (15 percent), they 

accounted for almost half of nonfamily farm production in 2006. 

Regardless of the defi nition used, family farms make up the majority of farms. 

Despite large differences among family farm defi nitions, the type of screen 

appears to have a much more signifi cant impact on the number of family 

farms eligible for Federal assistance than the defi nition used. Indeed, a large 

percentage of family farms would become ineligible under two of the three 

“actively engaged” screens (“sales” and “household income from farming”) 

no matter which family farm defi nition is considered here (see fi g. 13).

Requiring operators to rely on the farm for most of their household income 

would likely have the greatest impact on the number of family farms quali-
30

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fying for Federal assistance. Depending on the defi nition of family farm 

used, requiring farm income to account for at least 50 percent of household income would have disqualifi ed 82 to 87 percent of family farms and 

between 30 and 40 percent of family farm sales in 2006. Requiring annual 

farm sales of $10,000 or more would have disqualifi ed 58 to 70 percent of 

family farms and less than 4 percent of family farm sales. Disqualifying 

farm operators earning $100,000 in off-farm income would have reduced the 

number of family farms eligible for assistance by 18 to 20 percent, and the 

amount of sales from family farms by 10 to 15 percent.

Figure 13

Percent of U.S. family farms and sales that become ineligible for Federal assistance, 

by screen and definition

1 ERS definition = Owned and operated by family members.

2Labor definition = Operator and spouse provide at least half of labor on farm.

3Land definition= Operator owns at least 75 percent of operated acres.

4CAFO definition = Farm is not a confined animal feeding operation (CAFO) and has less than 1,000 acres.

Source: ERS calculations based on USDA, Agricultural Resource Management Survey, 2006.

Family farm definition

ERS1 Labor2 Land3 CAFO4

0

10

20

30

40

50

60

70

80

90

ERS Labor Land CAFO

0

10

20

30

40

50

60

70

80

90

ERS Labor Land CAFO

0

10

20

30

40

50

60

70

80

90

Screen: Sales > $10,000

Screen: At least half of household

income comes from farming

Screen: Off-farm income

< $100,000

Family farms Sales
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Conclusion

Businesses designated as farms in the U.S. range from small operations with 

little or no production to operations with thousands of acres and thousands 

of head of livestock. Sales, expenses, off-farm income, labor allocation 

decisions, and the amount of government payments received also represent 

some of the attributes that vary considerably across farms producing similar 

outputs. Across farms producing different goods, these categories can vary 

even more.

USDA uses a very broad defi nition of the farm (any place that could produce 

at least $1,000 worth of agricultural goods in a given year) to monitor the 

health and productive capacity of the entire agricultural sector. On the one 

hand, using such a broad defi nition means that a large share of land in agriculture gets accounted for, which may be important for conservation or estate 

transfer policies. On the other hand, the majority of farms captured by this 

defi nition produce very little output and generate minimal sales, while a 

relatively small number of very large farms produce the bulk of agricultural 

goods and sales in the United States. As a result, the statistics generated for 

the farm sector as a whole need to be carefully interpreted. 

Recognizing this, policymakers have sometimes tried to aim Federal agricultural programs at those farm households deemed actively engaged in 

agriculture. Recently, proposals aimed at refi ning the defi nition of “actively 

engaged” have arisen in an attempt to target payments more precisely to their 

intended recipients. 

Several screens have been proposed to help better target Federal assistance 

to intended recipients. A sales screen could be used to identify those farmers 

that produce and bring to market substantial amounts of agricultural goods. 

However, careful implementation would be required to ensure the inclusion 

of farm households that may have produced (or tried to produce) substantial 

levels of output, yet had little or no sales. 

The share of income from farming also has been proposed to identify 

actively engaged farmers. In general, the more heavily the household relies 

on farming for income, the more actively engaged in farming the operator 

is likely to be. However, the link between production and income is not 

straightforward; higher than expected costs, bad luck (weather, pest infestations, animal disease), and even capital equipment investments (which 

can lead to high depreciation expenses) can radically lower income levels 

from farming, making this type of screen unreliable as a measure of active 

engagement.

A third proposal uses off-farm income levels to help distinguish between 

operations where the farmer is actively engaged in farming from those operated as part-time or hobby farms. High levels of off-farm income suggest 

that the operator does not rely heavily on the farm for income, while lower 

levels increase the likelihood that the farmer is actively engaged in farming. 

However, households of small farms with low levels of agricultural sales can 

also generate low levels of off-farm income, while the households of large 

farms with very high levels of agricultural sales can also produce high levels 

of off-farm income. In general, most farm households generate substantial 
32

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levels of off-farm income, making it unclear whether or not this screen would 

allow policymakers and program managers to target their intended recipients 

better. 

While screens might help target Federal aid to farmers, both the choice and 

the implementation of an appropriate screen require careful consideration. 

Important subsections of the agricultural population, such as beginning 

farmers, socially disadvantaged farmers, and limited-resource farmers, could 

be excluded from Federal assistance if any of the screens explored in this 

report were applied without exceptions. Additionally, the screens explored in 

this report may not work well if policymakers wish to pursue environmental 

goals rather than ensuring that Federal assistance accrues to those who are 

actively engaged in agriculture.

U.S. agricultural production has been shifting to larger and larger farm operations over time, raising the question of how the screens that may help identify 

actively engaged farms might affect family farms. As defi ned by ERS, 97 

percent of all farms in the U.S. are family farms, generating 84 percent of all 

agricultural sales. However, other groups use varying defi nitions of the family 

farm that either implicitly or explicitly involve farm size constraints, excluding 

larger farms from being classifi ed as family farms. Consequently, while most 

farms tend to remain family farms under all the various defi nitions examined, 

adding labor, land, and confi ned animal feeding operation (CAFO) restrictions 

to the defi nition of a family farm signifi cantly redistributes production (sales) 

to nonfamily farms.
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