The Changing Organization 

of U.S. Farming

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

Robert Ebel, Keith Fuglie, Penni Korb, Michael Livingston, 

Cynthia Nickerson, and Carmen Sandretto

Economic

Information

Bulletin

Number 88

December 2011

United States 

Department of 

Agriculture

Economic

Research

Service
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Recommended citation format for this publication: 

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

Keith Fuglie, Penni Korb, Michael Livingston, Cynthia Nickerson, and 

Carmen Sandretto. The Changing Organization of U.S. Farming. 

EIB-88. U.S. Dept. of Agriculture, Econ. Res. Serv. December 2011.

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United States

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A Report from the Economic Research Service

Abstract

Innovations in farm organization, business arrangements, and production practices have 

allowed farmers to produce more with less. Fewer labor hours and less land are used 

today than 30 years ago, and practices such as the use of genetically engineered seeds 

and no-till have dampened increases in machinery, fuel, and pesticide use. Likely aided 

by the increased use of risk management tools such as contracts and crop insurance, 

U.S. agricultural productivity has increased by nearly 50 percent since 1982. Future 

innovations will be necessary to maintain, or boost, current productivity gains in order to 

meet the growing global demands that will be placed upon U.S. agriculture. 

Keywords: agricultural trends, Agricultural Resource Management Survey (ARMS), 

business organization, census of agriculture, consolidation, contracting, demographics, 

government payments, land use, production practices, productivity, specialization.

Acknowledgments

The authors thank Mary Bohman, Catherine Greene, James M. MacDonald, Glenn 

Schaible, Patrick Sullivan, and Kirk White of the Economic Research Service (ERS), Soo 

Kim of USDA’s Agricultural Marketing Service, Joy Harwood and Ed Rall of USDA’s 

Farm Service Agency, Kevin Hintzman of USDA’s National Agricultural Statistics 

Service, Neilson C. Conklin of Farm Foundation, Michael J. Roberts of North Carolina 

State University, and an anonymous reviewer for both their time and their helpful 

comments. We also thank Dale Simms for his help editing and preparing the report for 

publication and Wynnice Pointer-Napper for the design and layout of the report.

The Changing Organization 

of U.S. Farming

Economic 

Information 

Bulletin 

Number 88

December 2011

Erik J. O’Donoghue, eodonoghue@ers.usda.gov,

Robert A. Hoppe, David E. Banker, Robert Ebel, Keith 

Fuglie, Penni Korb, Michael Livingston, Cynthia Nickerson, 

and Carmen Sandretto
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Contents

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

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

Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Farming Evolves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Data, Current and Historic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Chapter 1

Major Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Agricultural Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

The Future? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Chapter 2

Business Organization and Arrangements—and Risk . . . . . . . . . . . . . 19

Business Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Farm Business Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Federal Crop Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Government Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Chapter 3

Specialization and Concentration of Production . . . . . . . . . . . . . . . . . . 38

Trends in Farm Specialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Trends in the Size Distribution of Farms and Sales . . . . . . . . . . . . . . . . 43

What Are Some of the Drivers of Change? . . . . . . . . . . . . . . . . . . . . . . 48

Chapter 4

Production Practices and Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Genetically Engineered Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Soil Management Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Pesticide Use and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Nutrient Use and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Organic Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Irrigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Productivity in U.S. Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Declining Labor and Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Organization and Business Arrangements . . . . . . . . . . . . . . . . . . . . . . . 69

Continuing Shifts to Large-Scale Farms . . . . . . . . . . . . . . . . . . . . . . . . 70

Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
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Summary

What Is the Issue?

If global population and energy demands grow as expected, and if prices 

continue to fluctuate, current productivity gains may not keep pace with the 

increasing demands placed upon U.S. agriculture. Recognizing where to 

devote limited resources to ensure that continuing innovation takes place to 

meet these future demands requires understanding how production, managerial practices, business arrangements, and productivity influence each other. 

What Did the Study Find?

Over the past 30 years, a series of inter-related changes in input use, business 

arrangements, farm structure, and production practices combined to expand 

output without increasing the use of total inputs. Moreover, by allowing 

farmers to increase U.S. agricultural production through increased productivity instead of expanded land and chemical use, many of these innovations 

helped to limit the impact of agricultural production on the environment.

• Use of two major inputs, land and labor, has decreased over time. From 

1982 to 2007, land used in agriculture dropped from 54 to 51 percent of 

total U.S. land area, while farming used 30 percent less hired labor and 

40 percent less operator labor. Meanwhile, new technologies (such as 

precision agriculture)—often requiring new or advanced management 

techniques—have been increasingly adopted, particularly by farmers. 

• Farmers have altered how they manage their risk, including a heavier 

reliance on contracting (the value of production under contract increased 

roughly 10 percentage points between 1991 and 2007) and a shift of 

production to farms organized as partnerships and corporations (from 34 

percent of all farm product sales in 1982 to 43 percent by 2007), allowing 

risks to be spread over a wider set of stakeholders. Federal crop insurance has also become a major risk management tool (farmers insured 100 

million acres in 1989; by 2007, over 270 million acres were insured).

• Larger farms receive the bulk of commodity payments while most 

conservation payments accrue to smaller farms. Overall, payments are 

smaller yet make up a larger share of gross cash farm income for smaller 

farms, which often rely heavily on off-farm income, while larger farms 

receive larger payments that make up a much smaller share of their gross 

cash farm income. Over the past 3 decades, government policies have 

shifted from a concentration on supply management to focus on income 

support, while a growing emphasis has been placed on environmental 

concerns—most recently on working land programs. 

• Despite declines in the use of land and labor, agricultural productivity 

has maintained a linear growth pattern. Driven by the increased use of 

technology, production practices have changed, such as the increased use 

of no-till (from 5 percent of all planted acres in 1989 to 23 percent by 

2004) and the reduced use of pesticides on many crops. Many of these 

changes have also lowered labor requirements, which have allowed some 

farms to increase the size of their operations. Although production has 
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shifted dramatically to larger farms over the past 25 years, 97 percent of 

all farms remain family farms, generating 82 percent of the total value of 

U.S. agricultural production. 

How Was the Study Conducted?

This study drew upon data from various sources. USDA's 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 and their operators in the 48 contiguous States (see www.

ers.usda.gov/Briefing/ARMS/). The ARMS Phase III 1996-2008 surveys 

provided detailed information on farm business organization, contracting, operator demographics, government payments, and production practices. 

The census of agriculture provides comprehensive historical data on consolidation and specialization trends. Data on trends in government payments 

came from the U.S. and State Farm Income series (the sector accounts) 

maintained by ERS. Various NASS publications, such as the Acreage reports, 

provided additional data on genetically engineered crop adoption and other 

crop production practices. National Resources Inventory (NRI) data provided 

land use estimates, and administrative data concerning program payments are 

from the agencies issuing them. 
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Introduction

While U.S. farms generated less than 1 percent of total U.S. gross domestic 

product (GDP) in 2007, they remain an important segment of the U.S. and 

global economy. Although U.S. agriculture has maintained productivity 

increases while reducing resource use, expected world population growth and 

increasing energy demands could soon outstrip its capacity to meet these needs. 

An open question is whether future productivity gains can match previous 

trends without harming the natural resources farmers require as crucial inputs 

or jeopardizing the quality of U.S. soils, air, and water supplies.

Productivity increases require more efficient use of existing resources, 

and land is one of the most important inputs to farming. Over the past 

3 decades, gains in productivity have allowed for increased production 

on less cropland. Most changes in cropland levels are due to farmers 

and landlords shifting land between cropland and grazing or forest land 

uses, while some land leaves agriculture altogether due to urban development pressures. 

Farmers face many sources of risk, which can cause productivity to suffer. 

They rely heavily upon their inputs, some of which (precipitation, sunshine) 

cannot be controlled. Farmers also face risks from pests and diseases, 

which can destroy crops and livestock. In addition, global population 

growth and drives to generate renewable energy could contribute to high 

and fluctuating oilseed and grain prices, putting increasing pressure on the 

resources used by farmers. 

Policy Issues

The problems that face the agricultural sector vary over time due to changes 

in technology, local and global market conditions, and consumer concerns. 

For example, consumers demand safe yet affordable food, while also 

professing concern for both small farms and family farms. Often, new situations engender the introduction of new policies—a process that may create an 

inefficient patchwork of government programs.

Farming Evolves

Examining changes in farm organization, production practices, Government 

policies, and productivity over the past three decades enables informed 

thinking about the innovations that have allowed the agricultural sector to 

successfully adapt to changing market conditions in the past. Over 1982-

2007, use of many farm inputs, including land and labor, remained constant 

or declined, while productivity grew through improvements in technology, 

increased use of some chemical inputs, and changes in production practices 

like increases in the use of conservation tillage. 

Greater technology adoption, however, has heightened farm operators’ need 

for education and has encouraged farmers to increase the size of their operations. In turn, larger farms have led farmers to rely more on contracting and 

corporate forms of organization, spreading risks over a wider set of stake-
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holders. Federal crop insurance and income support programs also help 

farmers absorb risk.

Production has shifted to larger farms that are more likely to be profitable, 

better able to adopt new technologies, and more likely to use production or 

marketing contracts. In contrast, the number of smaller commercial farms 

(annual sales $10,000-$250,000) has declined, while noncommercial farms, 

with sales below $10,000, largely exist independently of the farm economy. 

However, despite the continued shift of production to larger farms, farming 

has remained primarily a family business. The family-farm share of the farm 

count remained between 97 and 99 percent from 1988 through 2007.

Data, Current and Historic

This report draws upon data from various sources. USDA’s National 

Agricultural Statistics Service (NASS) and the Economic Research Service 

(ERS) jointly design and administer multiple annual surveys, known collectively as the Agricultural Resource Management Survey (ARMS). ARMS 

covers U.S. farms and the farmers who operate them in the 48 contiguous 

States (see www.ers.usda.gov/Briefing/ARMS/). The 2007 ARMS Phase 

III (which coincides with the most current census of agriculture) provides 

detailed information on farm business organization, contracting, operator 

demographics, government payments, and production practices. 

For long-term consolidation and specialization trends, however, we rely 

largely on the census of agriculture, which dates back to 1840 (ARMS has 

been in use only since 1996). Data on government payments come from 

administrative data maintained by the agencies that make the payments, 

while data on trends in government payments back to 1982 come from 

the U.S. and State Farm Income series maintained by ERS. Another ERS 

data series, Agricultural Productivity in the United States, provides data 

on farm productivity.

Various NASS publications, such as the Acreage reports, provide additional 

data on genetically engineered crop adoption and other crop production practices. For land use estimates, this report draws upon the ERS Major Land 

Use series and the National Resources Inventory (NRI) from USDA’s Natural 

Resources Conservation Service. Finally, we summarize results from the 

literature to provide insights into why various changes took place.

The 1982-2007 Period

We chose the 1982-2007 period because it is the most recent 25-year period 

covered by the census of agriculture. From 1982 until 2002, there was no 

clear trend in prices for farm products, as measured by the producer price 

index (PPI) for farm products. After 2002, however, prices have trended 

upward, at least through 2010. Higher prices in recent years mean that 

farmers face a different economic environment—with strong price signals—

which appears to be continuing. 

Not all data sources cover the entire 1982-2007 period. In particular, we 

follow contracting, farm operators’ education, and selected business arrangements from 1991 to 2007 using ARMS and its predecessor, the Farm Costs 
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and Returns Survey (FCRS). Also, our examination of farming stops at 

the farm gate, precluding topics such as the effects of international trade or 

changing consumer preferences on farm organization.

The Farm Definition

The USDA defines a farm as any place that produced and sold—or 

normally would have produced and sold—at least $1,000 of agricultural products (including government payments) during a given year 

(O’Donoghue et al., 2009b). If a place does not have sales of at least $1,000, 

a “point system” assigns values for acres of various crops and head of livestock to estimate normal sales (where 1 point equals 1 dollar in estimated 

sales). “Point farms” are farms with sales less than $1,000 but points worth 

$1,000 or more. 

Point farms’ share of the farm count has grown over time, increasing from 

11 percent of all farms in the 1982 Census of Agriculture to 31 percent 

in 2007 (Hoppe et al., 2010). Some of this increase, however, is due to 

methodological changes in the census of agriculture (see box, “Counting 

Farms: Methodological Changes,” p. 4). One of these changes—weighting 

census estimates for undercoverage—is particularly important, since it 

increased the count of point farms by 50 percent.1 In addition, NASS has 

increased its efforts to contact more small farms when conducting the 

census of agriculture.

By 2007, farms with sales less than $10,000—including point farms—made 

up 60 percent of all U.S. farms, up from 43 percent in 1982 (measuring sales 

in constant 2007 dollars). Farms with sales less than $10,000 are more likely 

to be rural residences than farm businesses. Thus, this report, when appropriate, sorts farms by sales class so that information about the large number 

of point farms and other farms with sales less than $10,000 does not mask the 

characteristics of more commercially oriented farms.

1The census of agriculture published 

selected estimates for 1997 with and 

without the coverage adjustment, which 

allows analysts to measure the effect of 

the adjustment. The adjusted estimate 

of point farms in 1997 was 416,000, or 

50 percent higher than the unadjusted 

estimate of 277,200.
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Three methodological changes introduced in recent censuses of agriculture have 

increased the count of U.S. small farms:

1. Data for 1997 through 2007 were adjusted for undercoverage (farms that the 

census missed), predominantly focusing on farms with sales less than $2,500 

(USDA, NASS, 2004). Prior to that time, gross adjustment factors were 

published. However, these factors were not applied to the published estimates 

or the estimates in computer files.

2. The 2007 Census of Agriculture counted more farms in the lowest sales 

categories, due to extensive mailing list building efforts and increased 

area sampling (USDA, NASS, 2010a). In addition, commodity prices were 

relatively high in 2007, which means that more establishments were able to 

meet the $1,000 minimum sales level necessary to be counted as a farm.

3. Beginning in 1997, the census asked the respondent for each Indian reservation 

to report the number of American Indians operating farms or ranches on the 

reservation (USDA, NASS, 1999, p. VIII). Prior to 1997, the census counted 

only one operator per reservation. 

The last item in the list obviously increased the count of American Indian operators, 

most of whom have small farms. The first and second changes, however, increased 

estimates of small farms in general as well as counts of small farm operators who 

are women, members of a racial minority, or Hispanic. The changes outlined above 

improved the quality of census data while complicating the analysis of long-term trends. 

While the aforementioned changes took place explicitly, a fourth, more subtle 

complication involves the definition of a farm. An entity qualifies as a farm if it has 

annual sales (or normally would have annual sales) of $1,000 worth of agricultural 

commodities. This definition was first implemented in the 1970s, and has not 

changed since. Nominal price increases, therefore, implicitly lead to an increasing 

number of point, and very small farms over time.

Counting Farms: Methodological Changes
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Chapter 1

Major Inputs

Labor and land both figure prominently as major inputs into farming. Both 

labor and land—particularly cropland—have trended downward over time, 

with labor declining more rapidly than land. While aging farmers make up 

the bulk of operators, those who run the larger, more productive operations 

tend to be younger. The majority of agricultural land appears to stay in agriculture over time, and most of the changes in cropland occur as transitions to 

other agricultural uses, such as grassland, pastureland, and rangeland. 

Labor

Farm operators and their families provide much of the labor used in 

farming—particularly on smaller farms—as well as management. As farm 

size increases, however, the ability of the operator’s family to meet the labor 

requirements of the farm business diminishes. These farm operators may use 

hired or contract farm labor, the use of which increases sharply with sales 

(table 1.1). Fifteen percent of farms with annual sales less than $10,000 used 

hired/contract labor in 2007, versus 88 percent of farms with sales of $1 

million or more. 

The person who acts as the employer determines the difference between 

hired and contract labor. Farm operations pay hired workers directly, and the 

worker is a farm employee. In contrast, farm operations pay labor contractors 

(or crew leaders) for the performance of specific tasks by contract laborers. 

Amount and Sources of Labor

The amount of labor used per farm grows with farm size, increasing from 

a median of 0.7 annual person equivalents (1 person working 40 hours per 

week for 50 weeks) for the smallest farms to 5.6 for the largest (fig. 1.1). 

The operator and spouse provide the bulk of the labor on smaller farms—

averaging at least three-fifths of total labor hours until sales reach $500,000. 

Even in the $500,000-$999,999 sales class, the operator and spouse remain 

an important source of labor, accounting for roughly the same share of labor 

Table 1.1 

Farms reporting hired or contract labor, 2007

Sales class

Hired or 

contract labor

Hired 

labor

Contact 

labor

Percent

Less than $10,000 14.9 8.8 7.1

$10,000-$99,999 34.1 21.6 16.1

$100,000-$249,999 47.3 36.3 18.8

$250,000-$499,999 63.7 51.3 24.0

$500,000-$999,999 70.3 58.5 26.1

$1,000,000 or more 88.3 80.7 32.4

All farms 27.4 18.9 12.0

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 2007 

Agricultural Resource Management Survey, Phase III.
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hours as hired/contract labor. Once sales reach $1 million, however, hired 

and contract labor account for 89 percent of labor hours.

Hired and operator labor has trended downward in recent years, even as farm 

output has increased (fig. 1.2). By 2007, farming used 30 percent less hired 

Figure 1.1

Hours and sources of farm labor by sales class, 2007 

Median annual person equivalents per farm1

1One annual person equivalent equals 2,000 hours or 50 weeks per year times 40 hours 

per week.

2Includes other operators and unpaid workers.

Source: USDA, Economic Research Service and National Agricultural Statistics Service,

2007 Agricultural Resource Management Survey, Phase III.

0

1

2

3

4

5

6

7

Less than

$10,000

$10,000-

$99,999

$100,000-

$249,9999

$250,000-

$499,999

$500,000-

$999,999

$1,000,000 

or more

0

20

40

60

80

100

Operator & spouse

Hired & contract labor

Other

2

Percent of hours

Figure 1.2

Indices of total agricultural output, hired labor, and self-employed 

labor, 1982 to 2007 

Index value (1982 = 100)

1Operators and unpaid workers.

Source: USDA, Economic Research Service, Indices of farm output, input and total factor 

productivity (http://www.ers.usda.gov/Data/AgProductivity/#datafiles).

1982 84 86 88 90 92 94 96 98 2000 02 04 06

0

20

40

60

80

100

120

140

160

Total output

Hired labor

Self-employed labor1
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labor and 40 percent less operator (and unpaid) labor than in 1982, while farm 

output was 35 percent higher than in 1982.1 A recent ERS study found that 

labor hours devoted to farming declined 2.1 percent per year between 1981 

and 2004, while labor productivity increased by 3.7 percent per year. About 

two-thirds of the growth in output per hour of work came from growth in total 

factor productivity, or technological change, such as biotechnology, improved 

animal husbandry, improvements in machinery and chemicals, and more efficient farm size/organization (Fuglie et al., 2007). The U.S. agricultural research 

system, which includes both public and private-sector research, is a major 

driver of growth in total factor productivity (Fuglie and Heisey, 2007).

Farm Operators

Farm operators provide management on farms of all sizes and a significant 

share of the labor on farms with sales below $1 million. While most farmers 

are White men—83 percent in 2007—their share has decreased by roughly 

10 percentage points since 1982, reflecting recent growth in the number of 

minority and women operators (see box, “Women and Minority Operators 

Increase Their Shares,” p. 8).

Age

By 2007, roughly 30 percent of principal farm operators were at least 65 

years old (fig. 1.3), classified as “older operators” here, compared with only 8 

percent of self-employed workers in non-agricultural industries (U.S. Dept. of 

Labor, 2008). In contrast, the youngest farmers, those less than 35 years old, 

made up roughly 5 percent of principal operators, down from 16 percent in 

1982. The downward trend in the youngest farmers reflects farm consolidation, the presence of multiple generations of operators on some farms, and 

the capital-intensive nature of farming. For example, land prices and startup 

capital requirements can make it difficult for beginning farmers (especially 

young farmers with limited credit history) to purchase or rent land. 

Why So Many Older Operators? The advanced age of farm operators is 

understandable given the low sales requirements to qualify as a farm. Most 

operators live on their farm, and farmers can phase out of farming over a 

1Work by unpaid workers, such 

as members of the farm household, 

amounted to only 4 percent of total 

farm labor in 2007.

Figure 1.3

Principal farm operators by age class, 1982 to 2007

Percent of operators

Source: USDA, Economic Research Service, compiled from census of agriculture data.

At least 65 years old

Less than 35 years old

1982 87 92 97 2002 07

0

5

10

15

20

25

30

35
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Between 1982 and 2007, the number of U.S. farm operators stabilized at roughly 2 

million. Nonetheless, the number of non-White operators grew by two-thirds, women 

operators more than doubled, and Hispanic operators more than tripled. Not all the 

increase, however, came from new entrants. Some of the increase reflects changes in 

census methodology designed to provide better counts of small and minority-run farms.

By 2007, women operated more than 300,000 farms, representing nearly 14 percent 

of U.S. farms, up from 5 percent in 1982. Most of the farms operated by women 

are very small. Approximately 78 percent had sales less than $10,000 in 2007, 

compared with 57 percent of farms operated by men. Still, nearly 2,000 women 

operated farms with sales of at least $1 million in 2007.

Among minority farms, operations run by American Indians/Alaska Natives or 

Hispanics grew the fastest, increasing their shares by at least a percentage point (see 

figure). Overall, 6.5 percent of U.S. farms in 2007 were run by minority principal 

operators, up from 3 percent in 1982.1 Minorities, with the exception of Asians, tend 

to operate very small farms. A particularly large share of American Indians/Alaska 

Natives and Blacks operated very small farms—77 and 80 percent, respectively—

compared with 59 percent of Whites.

Only 43 percent of Asian farmers operate farms with sales less than $10,000. The 

share of Asians with million-dollar farms (8 percent) is much higher than for any 

other group, including Whites (2 percent). The higher sales of Asian farms reflect 

their specialization in high-value crops (vegetables, fruits, tree nuts, and nursery/

greenhouse products). The majority of Asian operators live in California and 

Hawaii, two States that specialize in these crops.

Women and Minority Farmers Increase 

Their Shares

1Minority operators include any non-Whites and Hispanics. Hispanics, however, may 

be of any race. Therefore, the percentage of U.S. farms operated by racial or Hispanic 

minorities—3 percent in 1982 and 6.5 percent in 2007—was adjusted to avoid counting 

nonwhite Hispanics twice.

Selected minority principal farm operators, 1982 to 2007 

Percent of all principal operators

Note: The graph excludes “other races” used prior to 2002 and “more than one race” used in 2002 

and 2007. 

1

Hispanics may be of any race. Nonwhite Hispanics, therefore, are counted as Hispanic and as a racial 

minority in this graph.

2

Two categories used in 2002 and 2007—”Asian” and “Hawaiian and Pacific Islander”—were combined to 

be consistent with earlier years.

Source: USDA, Economic Research Service, compiled from census of agriculture data.

1982 87 92 97 2002 07

0

0.5

1.0

1.5

2.0

2.5

3.0

Black

American Indian or

Alaska Native

Asian or Pacific Islander2

Hispanic1
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decade or more while easily retaining enough land or livestock to produce 

$1,000 in sales. Improved health and advances in farm equipment also allow 

operators to farm later in life than in past generations (Mishra et al., 2005). 

Older operators’ share of farms declines with sales class, reflecting their 

gradual withdrawal from farming (table 1.2). For example, older operators 

accounted for more than 30 percent of farms with sales up to $99,999, but 

only 17 percent of farms with sales greater than $500,000. In contrast, operators between 45 and 55 years old accounted for the largest share (34 or 35 

percent) of farms with sales greater than $500,000.

Does Age Matter? The 30 percent of U.S. farmers who were at least 65 in 

2007 raises concerns about their impending retirement from agriculture and 

replenishment by younger farmers. However, the eventual exit of these older 

principal operators is not as ominous as it first appears (Hoppe and Banker, 

2010). Most of the assets of older operators are on retirement or residential/

lifestyle farms that produce only 2 percent of the Nation’s farm output. A 

large share of the land owned by these operators is already rented out or 

enrolled in land-retirement programs. In addition, some commercially sized 

farms with older principal operators are multiple-generation farms, with at 

least 20 years separating the oldest and youngest operators and a replacement 

operator in the wings. 

Education

Farm operators historically graduated from high school at lower rates than 

the general public, but that gap had largely closed by the late 1980s (Bellamy, 

1992). By 2007, the share of farm operators receiving a high school diploma 

(90 percent) exceeded the graduation rate for all U.S. households (87 percent) 

(table 1.3). 

College degrees remain more common for all U.S. householders than for 

farm operators, though nearly 30 percent of the operators of million-dollar 

farms had college degrees in 2007, the same share as for all U.S. householders. The educational gap between operators of million-dollar farms and 

smaller farms has declined since the early 1980s (fig. 1.4). The increase in 

Table 1.2

Distribution of farms by sales class and age of principal operator, 2007

Sales class

Age of principal operator

Less than 

35 years

35 to

65 years

65 years

or more

Percent of sales class

All principal operators 5.4 64.9 29.7

 Less than $10,000 4.7 64.6 30.7

 $10,000 to $99,999 6.1 60.5 33.4

 $100,000 to $249,999 7.8 67.5 24.7

 $250,000 to $499,999 6.8 74.0 19.2

 $500,000 to $999,999 5.4 77.6 17.0

 $1,000,000 or more 5.0 78.2 16.8

Source: USDA, Economic Research Service, compiled from USDA, National Agricultural 

Statistics Service, 2007 Census of Agriculture.
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college education in the lowest sales class may reflect higher educational 

levels required for off-farm work.

Off-Farm Work...

By 2007, 40 percent of U.S. farmers spent at least 200 days per year working 

off-farm (table 1.4), up from 35 percent in 1982. Off-farm work is most 

common among the operators of farms with sales less than $10,000, and a 

substantial increase in very small farms—from 43 percent of all farms in 

1982 to 60 percent in 2007—helps account for the increase in off-farm work 

reported by farm operators. 

...and Income

Farm households’ off-farm work is reflected in the level and sources of their 

income. Median income for farm households with sales less than $100,000 

was just above the $47,300 average for all U.S. households in 2007, largely 

due to off-farm earnings (fig. 1.5). About three-quarters of all off-farm 

Table 1.3

Educational attainment, principal operators by sales class and all U.S. householders, 2007

Educational attainment

Principal operators by size of farm All 

principal 

operators

All U.S. 

householders Less than 1

$10,000

$10,000-

$99,999

$100,000-

$249,999

$250,000-

$499,999

$500,000-

$999,000

$1,000,000 

or more

Percent of group

Less than high school 10.2 9.9 10.3 6.0 5.9 4.9 9.7 12.8

Completed high school 41.5 42.2 42.6 41.4 40.8 37.0 41.6 29.4

Some college 25.4 22.5 25.0 27.5 29.5 28.6 24.9 27.3

College graduate 22.9 25.5 22.2 25.1 23.8 29.6 23.8 30.4

1Householders age 25 or older.

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 2007 Resource Management Survey for farm operators. U.S. Census Bureau, Current Population Survey for all U.S. households.

Figure 1.4

Farm operators who graduated from college, by sales class, 1991 to 2007

Percent of principal operators in sales class

Notes: Consistent educational data for farm operators are available only from 1991 forward. 

Sales classes are expressed in 2007 dollars, using the Producer Price Index for farm products

to adjust for price changes.

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 1991-1995 

Farm Costs and Returns Survey and 1996-2007 Agricultural Resource Management Survey. 

1991 93 95 97 99 01 03 05 07

0

10

20

30

40

50

Less than $10,000

$10,000 to $249,999

$250,000 to $999,999

$1 million or more
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income is from wage and salary jobs or self-employment. Older operators also rely on unearned income—such as Social Security, pensions, and 

interest/dividends. Nevertheless, farming is an important source of income 

for households operating farms with sales exceeding $100,000, and it 

accounts for most household income once sales exceed $250,000. In addition, 

farm households with sales of at least $250,000 had a larger median income 

in 2007 (ranging from $92,500 to $202,100 depending on sales class) than 

did U.S. households with a self-employed head ($75,500).

Agricultural Land

Farming’s contribution toward the Nation’s gross domestic product (GDP)—

averaging roughly 1.3 percent of GDP over the past 10 years—belies the fact 

that the sector uses a significant portion of the Nation’s resources to generate 

agricultural goods. Land is one of the most important of these resources, and 

Table 1.4 

Farms reporting hired or contract labor, 2007

Sales class of farm

operated

Reporting

off-farm

work

Days per year

1-99 days 100-199 

days

200 days or 

more

Percent of sales class

All principal operators 64.7 16.1 8.9 39.7

 Less than $10,000 71.0 17.2 8.9 44.9

 $10,000 to $99,999 65.3 15.3 10.8 39.2

 $100,000 to $249,999 48.7 14.7 8.4 25.5

 $250,000 to $499,999 38.9 14.0 5.8 19.1

 $500,000 to $999,999 33.4 11.3 4.1 17.9

 $1,000,000 or more 31.0 8.5 3.3 19.1

Source: USDA, Economic Research, compiled from USDA, National Agricultural Statistics 

Service, 2007 Census of Agriculture.

Figure 1.5

Median operator household income by source and sales class, 2007

1,000 dollars

Note: Household income is estimated only for family farms.

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 

2007 Agricultural Resource Management Survey, Phase III, for farm households. Federal

Reserve Board, 2007 Survey of Consumer Finances for all U.S. households and U.S. 

households with a self-employed head (Bucks et al., 2009).

All 

family

 farms

Less

than

$10,000

$10,000

to

$99,999

$100,000

to

$249,999

$250,000

to

$499,999

$500,000

to

$999,999

$1,000,000

or

more

-25

25

75

125

175

225

Median operator household income

Median farm

earnings

Median off-farm income

Median, all U.S. households 

with a self-employed head

Median, all U.S. households
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land used for agricultural purposes totaled 1.163 billion acres in 2007, representing about 52 percent of total U.S. land area (table 1.5). Of the land in an 

agricultural use, most has historically been in grassland pasture and range, 

followed by cropland, grazed forest land, and “special uses,” or land in farmsteads and farm roads (see box, “Land Use Definitions,” p. 13).

Between 1982 and 2007, the total amount of land in agricultural uses 

declined by about 5 percent, or 68 million acres, led by decreases in cropland 

(13 percent) and grazed forest land (18 percent). In 2007, cropland reached its 

lowest level since ERS began developing consistent estimates of major land 

uses in 1949.

In contrast, land in grassland pasture and range increased slightly, while 

farmsteads and farm roads (special uses) rose from 8 to 12 million acres over 

1982-2007. The 4-million-acre net increase combines an increase in housing 

and infrastructure to support farming among commercially oriented farms, 

a decline from absorbing abandoned farmsteads into agricultural uses, and 

an increase in farmsteads as the number of small farms with sales less than 

$1,000 has increased.

Shifts in Agricultural Land Use

While the total amount of land in agriculture has remained fairly constant, 

land has shifted among agricultural uses due to commodity price changes, 

evolving agricultural policies, and, more recently, bioenergy policies. The 

National Resources Inventory (NRI) land-use transition matrices show that 

the 2002-07 period accounted for some of the largest gross flows into and out 

of cropland since 1982. Between 2002 and 2007, a total of 14 million acres 

exited cropland uses while 4 million acres transitioned into cropland used for 

crops, for a net loss of 10 million acres.2

Most of the changes in cropland uses occurred due to transitions between 

cropland uses, pasture/rangeland, and forest—between 2002 and 2007, a net 

6.5 million acres of cropland was lost due to transitions between these three 

land use categories (USDA, NRCS, 2009). Roughly 9.3 million acres (65 

percent of the total land exiting cropland) moved into a pasture or rangeland 

2The NRI data used here are from 

a sample survey and represent the 

surface area (land and water) of the 48 

contiguous States. NRI sample covers 

all ownership categories, except federally owned land (not including federally owned land). The NRI uses points 

as sampling units—rather than fields 

or farms—and the points are revisited 

over time to provide longitudinal data. 

NRI data show how land is used and 

detail the natural resource and environmental conditions of the land (USDA, 

NRCS, 2009, pp. 1-8). NRI data and 

ERS’s Major Land Use data may give 

different totals because the former is 

based on a survey while the latter is 

compiled from various sources (largely 

government agencies) and includes 

federally owned land.

Table 1.5

Agricultural uses of land, 1982 and 2007

1982 2007 Change

Million acres Percent

Grassland, pasture, and range 597 614 2.8

Cropland 469 408 -13.0

Grazed forest land 157 129 -17.8

Special uses (farmsteads, farm roads) 8 12 50.0

 Total 1,231 1,163 -5.5

Note: Includes all 50 States. See box, "Land Definitions" for explanations of their land-use 

categories.

Source: For 1982 see citations in Frey and Hexem 1985. For 2007 data see citations in 

Nickerson et al. 2011.
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The Economic Research Service maintains the Major Land Use (MLU) time series 

(Nickerson et al, 2011). It is the only consistent account of all U.S. land uses, both 

public and private. Definitions used in the data are outlined below. The series is 

based on data from the census of agriculture, the Bureau of Land Management, the 

Forest Service, and other Federal and State agencies.

Agricultural land—Includes all relevant land uses, regardless of ownership. This 

includes more land than the concept of “land in farms” used by USDA’s National 

Agricultural Statistics Service. Land in farms consists primarily of agricultural 

land used for crops, pasture, or grazing. Land in farms also includes woodland and 

wasteland not being used for agricultural purposes (crop cultivation or grazing) 

as long as it was part of a farmer’s total operation, as well as idled cropland (land 

used for cover crops or soil improvement, and land in conservation programs 

such as the Conservation Reserve Program and the Wetlands Reserve Program). 

While agricultural land includes these land uses, it also includes land owned by the 

government and used for grazing under government permits on a per-animal head 

basis, as well as an estimate of grazing on forested Federal and non-Federal land 

that is not in farms.

Cropland—Includes cropland used for crops, cropland used for pasture, and idle 

cropland. The estimate of total cropland is based on the census of agriculture, which 

has been conducted by USDA’s National Agricultural Statistics Service roughly 

every 5 years since 1945. 

Cropland used for crops—Includes harvested cropland, crop failure, cultivated 

summer fallow. Cropland used for crops represented 82 percent of total cropland 

in 2007.

Cropland pasture—Pasture that is generally considered to be in long-term 

crop rotation. It also includes land used for pasture before crops reach maturity. 

Cropland pasture and permanent grassland pasture have not always been clearly 

distinguished in surveys. Nine percent of total cropland was in cropland pasture 

in 2007.

Idle cropland—Includes land in cover and soil-improvement crops and 

cropland on which no crops were planted. Cropland enrolled in the Federal 

Conservation Reserve Program (CRP) and Wetland Reserve Program (WRP) 

is included in idle cropland. Idle cropland made up 9 percent of total cropland 

in 2007.

Grassland pasture and range—Includes all open land used primarily for pasture 

and grazing. The MLU estimates include pasture and range in farms, estimates of 

private grazing land not in farms, and public, nonforested grazing land.

Grazed forest land—Includes brush-grown pasture, arid woodlands, and 

other areas within forested areas that have grass or forage. This land also 

includes woodland pasture in farms as well as estimates of forested grazing 

not in farms. For many States, the estimates include significant areas grazed 

only sporadically. 

Special uses—Includes farmsteads and farm roads.

Land Use Definitions
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use while 700,000 acres transitioned to forest. Of land shifting into cropland 

uses, nearly 3.4 million acres (75 percent of the total land entering) had been 

in pasture or rangeland uses in 2002 (fig. 6). 

While movements between major land uses happen annually, they constitute 

a relatively small proportion of the total agricultural land base. Between 2002 

and 2007, 96 to 99 percent of agricultural land remained in its pre-existing 

use (table 1.6). Larger land use transitions took place over the long run, 

with land in forest changing much more slowly than land used for crops and 

pasture/range. 

Land Used for Crops Declined 

in Every Region From 1982 to 2007

Land use patterns can vary greatly by region, reflecting differences in soils, 

climate, topography, and patterns of population settlement. Cropland used 

for crops, a category including land that is actively cropped or in short-term 

summer fallow (excluding idle cropland and cropland pasture—see box, “Land 

Use Definitions,” p. 13 for more details) is concentrated in the Northern Plains 

and the Corn Belt regions (table 1.7). Together, these two regions contained half 

of all cropland used for crops in the contiguous 48 States in 2007. 

Figure 1.6

Cropland transitions to/from selected land cover/use categories, 1982-2007

Note: Total cropland: 419.6 million acres (1982); 357.0 million acres (2007).

Source: USDA, Economic Research Service analysis of National Resources Inventory data (USDA, NRCS 2009).

1982-87 1987-92 1992-97 1997-2002 2002-07

Forest to crop

Net cropland change 

due to transitions

Crop to forest

Pasture/range to crop

Crop to pasture/range

-10 -5 0 5 10 15 -10 -5 0 5 10 15 -10 -5 0 5 10 15 -10 -5 0 5 10 15 -10 -5 0 5 10 15

Change in cropland acres (millions)

Table 1.6

Percent of land remaining in same use, 1982-2007

Land use

Census year 1982 

to 

1982-87 1987-92 1992-97 1997-02 2002-07 2007

Percent

Crop 93 92 95 93 96 78

Pasture/range 95 96 95 96 98 86

Forest 98 98 98 98 99 92

Source: USDA, Economic Research Service analysis of National Resources Inventory (USDA, 

NRCS, 2009).
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Cropland used for crops declined over 1982-2007 by nearly 48 million acres, 

with every region experiencing declines between 2.0 and 9.2 million acres. 

The Northeast has experienced a long-term decline in cropland used for crops 

due to urban pressures and a comparative disadvantage in many crops. The 

Southeast region, however, experienced a larger rate of decline (36 percent 

over 1982-2007) than any other region.

The large decrease in cropland used for crops between 1982 and 1992 reflects 

an increase in land enrolled in Federal acreage reduction programs and the 

Conservation Reserve Program (CRP). These increases were authorized by 

the 1981, 1985 and 1990 Farm Acts. CRP was authorized by the 1985 act, 

began enrolling acreage in 1986, and accounted for a majority of diverted 

acres by 1990 as the Acreage Reduction Program was phased out (Nickerson 

et al, 2011; Hellerstein, 2006).

Changes in the Mix of Major Crops

While cropland use in the United States has varied over the past three 

decades, the 8 most common crops—corn, soybeans, hay, wheat, cotton, 

sorghum, barley, and rice—have consistently accounted for the bulk of 

harvested acres. In 1982, farmers harvested over 316 million acres from 

these crops. By 1992—largely due to the increased enrollment of farmland 

in Federal acreage reduction programs and the CRP—only 276 million acres 

of these crops remained. As grain prices spiked in 1997, harvested acreage of 

these 8 crops rose to 298 million acres. 

By 2007, the expansion of minor crops, and the increased planting flexibility 

introduced by the 1996 Farm Act allowing producers to fallow land that had 

formerly been maintained in more permanent cultivation, caused the level of 

harvested acres of major crops to drop to roughly 286 million acres (fig. 1.7). 

However, higher corn prices—from a strong demand for ethanol—resulted 

Table 1.7

Cropland used for crops, by region, 1982-20071

Region 1982 1987 1997 2002 2007

Change

1982-2007

Million acres

Northern Plains 93.7 84.5 89.0 86.0 84.5 -9.2

Corn Belt 86.5 80.7 83.4 83.0 82.7 -3.8

Southern Plains 35.8 31.6 32.4 30.7 30.7 -5.1

Lake States 39.8 34.7 35.0 36.4 36.1 -3.7

Mountain 37.4 33.0 33.7 31.4 30.7 -6.6

Pacific 22.2 21.5 19.4 18.5 17.4 -4.8

Appalachian 19.3 16.6 16.9 17.1 17.3 -2.0

Northeast 13.6 11.1 10.7 11.4 11.0 -2.6

Southeast 14.6 10.4 11.6 9.8 9.4 -5.2

Delta States 19.2 16.5 16.3 15.7 15.2 -4.0

48 States1 382.6 337.4 348.6 339.8 334.9 -47.7

1Distribution may not add to totals due to rounding.

Source: See citations in Nickerson et al. 2011.
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in a sharp increase in corn acreage in 2007 (and later years). Many farmers 

increased their corn acreage by changing their rotation between corn and 

soybeans, which lowered the harvested acreage of soybeans in 2007, but 

soybean acreage rebounded by 2008. The simultaneous net expansion of both 

corn and soybean acreage over the 2000-2009 period resulted from a complex 

set of land use changes, largely shifts from cotton, wheat and uncultivated 

hay acreage and an increase in double cropping (Wallander et al., 2011).

Grazing Land

Land available for grazing includes grassland pasture and range (614 million 

acres in 2007), grazed forest land (129 million acres), and cropland used for 

pasture (36 million acres). Over 1982-2007, permanent grassland pasture and 

range made up about half of all agricultural land, with more than 90 percent 

of this land in the western half of the United States. 

Grazed forest land includes acreage in open forest, land reverting to forest, 

and other forested areas with grass or other forage growth that supports at 

least some grazing. This type of grazing is common throughout the West, 

Southwest, and the South, and regional acreage variations are a function of 

the productivity of forested grazing, the demand for grazing, the amount of 

forest land, and factors such as species composition and stand density. In part, 

declines in grazed forest land since 1982 (table 1.5) are due to increases in 

forest stand density (restricting grazing possibilities) and improvements in 

both livestock feeding and forest management practices. These factors have 

been especially important in the South, where woodland grazing acreages 

have historically been high.

Cropland pasture, the smallest but generally most productive component of 

grazing acreage, comprises a relatively high percentage of total grazing land 

in the eastern half of the United States. While rising commodity prices may 

induce shifts from grazing to cropping uses, farmers tend to employ idled 

cropland first since it is generally more suited to crop production. Cropland 

pasture declined from 65 million acres in 2002 to 36 million acres in 2007.3

3Some of this decline could be due 

to changes in how NASS accounted for 

nonresponses in the 2007 Census of 

Agriculture.

Figure 1.7

Acres of major crops harvested, 1982-2007

Million acres harvested

Source: USDA, Economic Research Service, compiled from USDA’s National Agricultural 

Statistics Service, (Quick Stats, 1982-2007).

Rice Barley Sorghum 

Cotton 

1982 84 86 88 90 92 94 96 98 2000 02 04 06

0

20

40

60

80

100

Wheat 

Corn 

Soybeans 

Hay 
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More Agricultural Land Is Subject 

to Urban Influence

Characteristics that make land attractive for farming (e.g., relatively flat land) 

also make it attractive for residential, commercial, and industrial development. While nationally only a small proportion of agricultural land has 

converted to urban uses, demand for urban uses is growing and, in contrast to 

other shifts in land use, land converted to an urban use rarely transitions back 

for agricultural purposes. During 1982-2007, NRI data indicate that most of 

the rural land converted to urban uses—over 11 million acres of cropland 

(roughly 3 percent of the cropland that existed in 1982), 12 million acres 

of pasture and rangeland (roughly 2 percent of the pasture/rangeland that 

existed in 1982), and 16 million acres of forest-use land—was previously in 

an agricultural use. 

Agricultural land near residential concentrations is often in high demand 

for other uses, and this can change its relative profitability. As areas become 

desirable for nonfarm uses, characteristics unrelated to agricultural production (natural amenities, for example) become important determinants of 

farmland value (Barnard et al., 2003).

Proximity to urban areas can also alter farm operators’ and landowners’ 

resource allocation decisions. Rising land values can induce farmers to switch 

to higher value crops that increase returns to farming. More frequent contact 

with nonfarm neighbors can also increase production costs (e.g., increasing 

travel costs to farm fields due to traffic congestion or dealing with complaints 

about farming dust and odors), which can induce farmers to adopt new 

production methods. Farmers may also begin producing commodities that 

can be marketed through farmers’ markets and “pick-your-own” operations, 

which shift transportation costs to buyers.

Nationally, in 2007, about 20 percent of the land in farms was subject to 

the effects of urban interactions. ERS estimates that an additional 4 percent 

of U.S. agricultural land became newly subject to urban influence between 

1982 and 2000. Urban influence expanded fastest in Appalachia and the 

Southeast, where an estimated 13 percent of land became newly subject to 

urban influence.4

The Future?

The amounts of both farmland and farm labor employed in the United States 

have been declining for decades. Between 1982 and 2007, the decline in total 

farmland was about 5 percent, but the decline in cropland was 13 percent. 

The aggregate supply of land—for farming and other uses—is ultimately 

fixed. If expected future demands begin to strain U.S. agriculture, farm 

operators can shift land out of other agricultural uses and into cropland. 

Nevertheless, there is a limit to how much range, pasture, and forest land 

would be productive as cropland.

The number of farms has stabilized in recent years, but only with growth in 

the number of very small farms whose operators depend on off-farm work 

and income. The amount of farm labor provided by hired laborers and opera4The estimates of farmland subject 

to urban influence are based on unpublished ERS analysis of NRI data using 

a 2000 index measuring proximity 

to population called the “PopulationInteraction Zones for Agriculture” 

(PIZA) codes. The PIZA codes are 

based on a population-interaction index 

that provides a cardinal measure of the 

potential interaction between nearby 

urban-related population (within 50 

miles) and agricultural production 

activities in each 5-kilometer grid 

cell in the continental 48 States. For a 

discussion about the PIZA codes, see 

http://www.ers.usda.gov/data/populationinteractionzones/discussion.htm.
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tors declined by 30 and 40 percent, respectively, between 1982 and 2007, but 

agricultural production continued to grow due to heightened productivity. 

Increased commodity prices—from, for example, world population growth 

or energy demands—could provide incentives to shift more land into crops 

and entice more people to enter farming. Nevertheless, future growth in farm 

production is likely to arise from continued productivity growth if historical 

trends continue.
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Chapter 2

Business Organization 

and Arrangements—and Risk

Farmers make many choices concerning their farm organization, and these 

choices have legal and economic implications. Organizational and marketing 

choices can also help reduce risk. For example, incorporating limits farm 

operators’ legal liability. Larger farms (measured in terms of gross farm 

sales) tend to be complex—with extensive assets at risk—and operators of 

these farms incorporate more often than smaller farm operators, who may 

not find it worth the time or expense to use anything but the simplest form of 

organization available, the sole proprietorship. 

Farming requires the control of land and other assets (livestock and 

machinery, for example), but these assets can often be rented—or hired on 

a custom basis—rather than owned, to avoid debt and the financial risks 

associated with the commitment of capital. Contracts can link farms to other 

businesses to market production and limit price or production risks. Often, 

farmers also have business arrangements with the Federal Government via 

crop insurance and other support programs to safeguard against productionor demand-driven risks to income.1

Business Organization

Farmers may use any of three traditional forms of business organization 

for legal purposes: proprietorship, partnership, or corporation. The simplest 

form of legal organization, the sole proprietorship, does not require any legal 

action to form, and the law makes no legal distinction between the proprietor (the owner of the business) and the business. The proprietor (the farmer 

or farm couple) controls the farm assets, is legally liable for the farm’s debt 

and management decisions, and receives the income from the business. 

The proprietor reports the farm net income on his or her personal tax form 

(Johnson and Perry, 2001).2

More complex forms of legal organization—partnerships and corporations—

allow multiple owners to work together. A single individual or family may not 

have the resources—management, labor, and assets—to run a commercially 

oriented farm. Partnerships and corporations allow people (not necessarily 

related to each other) to pool resources.

At least two people own a farm partnership and follow a legal agreement, 

which specifies the rules for managerial decisionmaking, the division of 

profits/losses, dispute resolution, and each partner’s contribution of labor and 

capital. Each partner remains liable for the farm’s debts and management 

decisions and reports his or her shares of the farm’s net income on his or her 

personal income tax forms. 

In contrast, a corporation is chartered under State law. It is an entity legally 

separate and distinct from its owners (the shareholders), who have no legal 

responsibility for the debts and decisions of the firm. However, officers of the 

corporation, who may also be owners, can be held liable for their actions as 

officers. Unlike a sole proprietorship or partnership, a corporation has a life 

1We classify Federal crop insurance 

and payments from Government farm 

programs as business arrangements in 

this chapter. Classifying Federal crop 

insurance as a business arrangement 

is understandable, since it is insurance 

to mitigate risk (like any other insurance). Classifying the farm programs 

as business arrangements is less 

straightforward. Some programs pay 

farmers when commodity prices fall—

or production fails in a natural disaster—thus protecting them from price 

or production risks. These programs 

can be viewed as contracts between 

farmers and the Federal Government 

to reduce risk. Other programs payments, however, are determined by 

the farmer’s history of production and 

fixed payment rates set by legislation 

and do not vary with current economic conditions, such as the level of 

commodity prices. Nonetheless, these 

programs are discussed in this chapter, 

along with the other farm programs.

2Most information about the forms of 

business organization comes from the 

U.S. Small Business Administration 

(2010). A new form of business organization, the limited liability company 

(LLC), is discussed later.
20

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of its own that does not end with a change in ownership or with the death of 

the owners. 

Trends in Business Organization

Sole proprietorships, partnerships, or family corporations—where related 

people hold a majority of the stock—have consistently made up all but 1 or 

2 percent of farms since 1982 (table 2.1). The distribution of farms among 

these categories has been stable, with sole proprietorships making up 86 to 88 

percent of farms each year. 

The same three forms of organization also accounted for more than 92 

percent of agricultural sales over 1982-2007 (table 2.2), though with marked 

shifts in the distribution of sales. Family corporations and partnerships each 

increased their share of sales by 5 percentage points, while proprietorships’ 

share shrank by 10 percentage points. Still, sole proprietorships accounted for 

about 50 percent of sales in 2007.

Nonfamily corporations—where related people do not own a majority of the 

stock—make up a relatively minor and stable share of farm numbers and 

sales. Nonfamily corporations, part of the “other organization” category in 

tables 2.1 and 2.2, accounted for 0.3 to 0.5 percent of all farms and 6 or 7 

Table 2.1

Farms by business organization, selected censuses, 1982-2007

Business organization 1982 1987 1997 2007

Percent

Sole proprietorship 87.8 86.7 86.0 86.5

Partnership 10.0 9.6 8.9 7.9

Family corporation1 2.3 2.9 4.0 3.9

Other2 0.9 0.9 1.2 1.7

 Total 100 100 100 100

1More than 50 percent of the stock is owned by persons related by blood or marriage.

2Nonfamily farms, estates or trusts, prison farms, grazing associations, American Indian 

Reservations, etc.

Source: USDA, Economic Research compiled from census of agriculture data.

Table 2.2

Farms product sales by business organization, selected censuses, 

1982-2007

Business organization 1982 1987 1997 2007

Percent

Sole proprietorship 59.1 56.3 52.2 49.6

Partnership 16.3 17.1 18.1 20.9

Family corporation1 17.4 19.5 23.3 22.1

Other2 7.3 7.1 6.5 7.3

 Total 100 100 100 100

1More than 50 percent of the stock is owned by persons related by blood or marriage.

2Nonfamily farms, estates or trusts, prison farms, grazing associations, American Indian 

Reservations, etc.

Source: USDA, Economic Research compiled from census of agriculture data.
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percent of agricultural sales each census year. Most nonfamily corporations 

are not large, publicly held companies. In 2007, 69 percent of nonfamily 

corporate farms had less than $250,000 in sales. 

Current Organization and Farm Size

While most operators organize their farms as sole proprietorships in the 

United States, the share of farms organized as partnerships and corporations 

steadily increases as farm size increases. Ninety-seven percent of the smallest 

farms (sales less than $10,000) are proprietorships, a larger share than any 

other sales class (fig. 2.1). 

Most of these very small farms actually are rural residences or retirement 

farms whose operator households receive much, if not all, of their income 

from off-farm sources. About 78 percent of the households in this sales class 

incur losses from farming, yet median household income for the sales class 

was $50,900 in 2007, or $3,600 more than the median for all U.S. households 

($47,300). 

Given the scale of these farms and the small returns they provide, it may not 

be worth the expense or time to use any organization other than the proprietorship. By the time sales reach $1 million, however, only 51 percent of 

farms are organized as sole proprietorships. 

Family Farms

USDA’s Economic Research Service currently defines family farms as operations where the operator and individuals related to the operator—including 

relatives who do not live in the operator’s household—own the majority of the 

farm business. Based on USDA surveys, the family-farm share of the farm 

Figure 2.1

Business organization of farms by sales class, 2007

Percent of sales class

Notes: Sole proprietorships in ARMS include informal partnerships, such as those between 

spouses. The graph excludes the small “other” category, which includes estates, trusts, 

cooperatives, and grazing associations.

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 

2007 Agricultural Resource Survey, Phase III.

Less

than

$10,000

$10,000 

to

$99,999

$100,000

to

$249,999

$250,000

to

$499,999

$500,000

to

$999,999

$1,000,000

or

more

0

20

40

60

80

100

Sole proprietorship

Legal partnership

Corporation
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count has remained fairly stable over the years, consistently falling between 

97 and 99 percent of all farms from 1988 to 2007.3

Farming in the United States, therefore, is largely a family business, regardless of sales class. About 98 percent of U.S. farms were family organizations 

in 2007, and these family farms accounted for 82 percent of production (table 

2.3). Family farms’ share of the farm count and production drops as farm size 

increases. Yet, family farms still accounted for 86 percent of million-dollar 

farms and 69 percent of their production in 2007. 

Limited Liability Companies (LLCs)

LLCs are a relatively new form of business organization allowed under State 

law. They were first authorized by Wyoming in 1977, then by Florida in 1982 

(Keatinge et al., 1992). Other States followed after 1990 due to favorable 

income tax rulings, changes in tax structure favoring pass-through taxation, 

and State legislatures trying to attract businesses.

The LLC form of organization provides business owners with limited liability 

for debts and actions of the business, management flexibility, and passthrough taxation (U.S. Dept. of Treas., IRS, 2008). LLCs must choose to file 

taxes as an individual (i.e., a proprietorship), a partnership, or a corporation, 

which means LLCs can be sorted into the more traditional business organization categories.

Overall, LLCs accounted for only 3 percent of U.S. farms and 16 percent of 

production in 2007 (table 2.4), but made up a larger share of million-dollar 

farms (15 percent) and their production (25 percent). As farm size (measured 

by sales) increases further still, the LLC share of farms becomes particularly 

high. Operators organized 30 percent of $5-million farms as LLCs.

Part of a Larger Firm

Less than 1 percent of U.S. farms are part of a larger firm, such as a company 

that processes farm products. However, about 3 percent of million-dollar 

farms are part of a larger firm, and these farms account for 10 percent of the 

3Estimates of the number of family 

farms are available from ARMS for 

1996 through 2007. Estimates for 

1988 through 1995 are available from 

the Farm Costs and Returns Survey 

(FCRS), the predecessor of ARMS. 

Note that the definition of “family 

farm” has changed over the years (see 

“Family Farms” at: http://www.ers.

usda.gov/Briefing/WellBeing/glossary.

htm#familyfarm.)

Table 2.3

Family farms by sales class, 2007

Business organization

Family farms’ share of...

Farms

Value of 

production

Percent

Less than $10,000 98.4 94.5

$10,000-$99,999 97.1 97.2

$100,000-$249,999 96.9 96.7

$250,000-$499,999 96.6 96.5

$500,000-$999,999 96.2 96.0

$1,000,000 or more 85.6 69.2

All farms 97.6 82.1

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 2007 

Agricultural Resource Management Survey, Phase III.
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output of that sales class. Forty-four percent of these million-dollar subsidiaries specialize in livestock and another 39 percent specialize in high-value 

crops (vegetables, fruits, tree nuts, and nursery/greenhouse products).

Farm Business Arrangements

U.S. farms use a variety of business arrangements that link them to other 

firms and individuals. For example, farms may use marketing or production contracts to sell or remove the commodities they produce. Agricultural 

production requires the control of land and other assets, and renting these 

assets enables this without tying up capital. 

Marketing and Production Contracts4

For farmers, contracts offer two main advantages. First, farmers can use 

marketing or production contracts to ensure outlets for their commodities, 

especially in thin markets or in markets for perishable products (see box, 

“Types of Contracts,” p. 24). Second, contracts can reduce production and 

price risks. Production risks arise from unpredictable events, such as drought, 

frost, hail, and insect infestations in the case of crops; or animal disease, feed 

supply shortages, and extreme temperatures in the case of livestock. Price 

risks arise from unanticipated changes in output or input prices. 

Both marketing and production contracts can minimize output price risk 

by making contract prices or fees independent of market prices. Production 

contracts can eliminate most input price risk since contractors provide the 

inputs that comprise most operating expenses. Contracts may also shift 

some of the production risk to processors. For example, a poultry production contract where the contractor is responsible for veterinary services may 

reduce production risks for the producer. Contracting, however, may introduce new risks to the producer. For example, the farmer may be unable to 

produce commodities that meet the quality or quantity benchmarks specified 

by the contract, which can result in noncompliance penalties. 

4Discussion of the characteristics of 

contracts is drawn from MacDonald et 

al. (2004) and MacDonald and Banker 

(2005).

Table 2.4

Limited liability companies (LLCs) by sales class, 2007

Sales class

LLCs’ share of...

Farms

Value of 

production

Percent

Less than $10,000 1.7 2.5

$10,000-$99,999 5.1 5.6

$100,000-$249,999 3.7 4.1

$250,000-$499,999 5.4 5.4

$500,000-$999,999 8.2 7.8

$1,000,000 or more 15.3 25.3

All farms 3.3 16.2

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 2007 

Agricultural Resource Management Survey, Phase III.
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Contracts Since the 1990s5

The share of U.S. agricultural production under marketing or production 

contracts grew between 1991 and 2000, but stabilized at around 40 percent 

afterward (fig. 2.2). In contrast, the share of farms with contracts has been 

stable since 1991, with roughly 1 in 10 farms using either type of contract. 

About 8-10 percent of farms have marketing contracts in a given year, while 

only 2-3 percent have production contracts.

5Consistent contracting data begin in 

1991 in USDA surveys.

A contract is an agreement—written or oral—between a farm operator (contractee) 

and another person or firm (contractor) to produce a specific type, quantity, and 

quality of agricultural commodity. Farmers typically use two types of contracts, 

marketing contracts and production contracts, both of which specify how the 

grower is to be compensated.

Marketing contract. Ownership of the commodity remains with the farmer 

during production. The contract sets a price (or a pricing formula), product 

quantities and qualities, and a delivery schedule. Contractor involvement in 

production is minimal, and the farmer provides all the inputs. For crops, the 

contract is finalized before harvest. For livestock, the contract is finalized before 

the animals are ready to be marketed.

Production contract. The contractor usually owns the commodity during 

production and the farmer is paid a fee for services rendered. The contract specifies 

farmer and contractor responsibilities for inputs and practices. The contractor often 

provides specific inputs and services, production guidelines, and technical advice. 

In livestock contracts, for example, contractors typically provide feed, veterinary 

services, transportation, and young animals. The contract is finalized before 

production of the commodity. 

Source: MacDonald and Banker (2005) and MacDonald and Korb (2008).

Types of Contracts

Figure 2.2

Use of contracts, 1991-2007

Percent of U.S. farms or production

Notes: Data are not available for all years in the 1991 to 2007 period shown. Data include 

both marketing and production contracts. 

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 

1991-1995 Farm Costs and Returns Survey and 1996-2007 Agricultural Resource Management 

Survey.

Value of production under 

marketing or prodution contracts

Farms with marketing or 

prodution contracts

1991 95 2000 05 06 07

0

10

20

30

40

50

60
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Note that changes in the annual production or value of specific commodities 

may affect the share of the total value of production under marketing and 

production contracts. For example, the all-commodity share of production 

under contract will rise in years in which commodities with above-average 

contract shares account for a larger share of agricultural production. 

Estimates of contract production also vary from year to year because the 

data are drawn from random samples of farms. The rest of the discussion 

of contracting focuses on specific commodities under contract—rather than 

aggregate production—which makes fluctuations from random sampling 

more pronounced. Thus, survey years are combined to smooth out these 

annual fluctuations (MacDonald and Korb, 2008).

Changes in Contract Production, 

by Commodity

Although the share of aggregate farm production under contract has stabilized at around 40 percent, the aggregate data mask large changes for specific 

commodities or commodity groups. In particular, the share of livestock production under contract grew from 33 percent in 1991-93 to 50 percent in 2006-07 

(fig. 2.3), led by hogs and cattle under production contracts. Production under 

contract was more stable for dairy production (mostly marketing contracts) and 

poultry and egg production (generally production contracts).

The share of crops under contract—typically marketing contracts—has remained 

relatively steady. Between 1991 and 2007, the share of crop production under 

contract has fluctuated between 25 and 30 percent (fig. 2.4). The shares of corn, 

soybeans, and wheat grown under contract have grown, although contract production of these crops remains below the overall crop average. 

We might expect more field crops—like corn, soybeans, and wheat—to shift 

to contracts if recent variability in crop prices continues, since both producers 

Figure 2.3

Production under marketing or production contracts for selected 

livestock species, 1991-2007

Percent of commodity production

Note: Data include both marketing and production contracts.

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 

1991-1995 Farm Costs and Returns Survey and 1996-2007 Agricultural Resource Management 

Survey.

1991-93 94-96 97-99 2000-02 03-05 06-07

0

20

40

60

80

100

Cattle

Hogs

Dairy

Poultry and eggs

All livestock
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and processors might find production planning easier with more stable prices or 

pricing mechanisms. For example, corn prices averaged $2-$3 per bushel from 

2001 to late 2007, but have ranged from just over $2.00 to roughly $5.50 since. 

Similar volatility has occurred for wheat and soybeans (USDA, NASS, 2011).

Accessing Land

Land ownership is very common among U.S. farm operators: 84 to 96 

percent of the farms in each sales class own some land (fig. 2.5). However, 

three-fourths of farms with sales of at least $100,000 report renting land. 

Renting farmland allows a farm operation to expand without incurring the 

risks associated with debt and the commitment of capital. Renting also 

enables rapid response to changing commodity markets. Farms with sales 

above $100,000 also report the most frequent use of share rental arrangements, ranging from 20 to 30 percent of the farms in each sales class. This 

reflects heavy concentrations of grain producers (who use share rental agreements extensively) in these sales classes. Forty-two percent of all farms with 

sales above $100,000 specialize in cash grains, accounting for 65 percent of 

all U.S. farmland rented for shares.

Nonoperator Landlords

Most of the farmland rented by farmers is leased from people who are not 

currently farm operators themselves. In the 2007 ARMS, 277,500 farm 

operators reported renting 62 million acres of farmland to others, which 

accounted for only 16 percent of the 395 million acres of rented farmland. 

Nonoperator landlords provided the rest of the rented land. 

Information about nonoperator landlords is sparse. The Agricultural 

Economics and Land Ownership Survey (AELOS) of 1999 still provides the 

most current, detailed information about nonoperator landlords and their 

farmland (USDA, NASS, 2001). Ninety-five percent of nonoperator landFigure 2.4

Production under marketing or production contracts for selected 

crops, 1991-2007

Percent of commodity production

Note: Data include both marketing and production contracts.

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 

1991-1995 Farm Costs and Returns Survey and 1996-2007 Agricultural Resource Management 

Survey.

1991-93 94-96 97-99 2000-02 03-05 06-07

0

5

10

15

20

25

30

Corn

Soybeans

Wheat

All crops
27

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lords were individuals/families or partnerships in 1999. Of these unincorporated landlords, 55 percent were at least 65 years old and another 11 percent 

were between age 60 and 64. Nonoperator landlords altogether provided 51 

percent of U.S. cropland—excluding orchards, vineyards, and pastured cropland—used by farmers in 1999.6 However their share of other types of land 

is substantially less including 23 percent of orchards and vineyards, 31 of 

pastureland, and 38 percent of woodlands not pastured.

Trends in Leased Farmland

Despite the prevalence of renting among farms with sales totaling at least 

$100,000, the number of acres leased by farmers actually declined by 13 

percent (or 54 million acres) between 1992 and 2007—after stabilizing 

between 1982 and 1992 (fig. 2.6). Three-fourths of the decline in leased 

farmland came from tenants (operators who don’t own any land), despite 

their smaller numbers relative to part owners. By 2007, tenants’ share of 

leased farmland had declined to 23 percent from 30-32 percent in the 1980s 

and early 1990s, extending the long-term decline in tenant acres since 1935 

(Janssen, 1993; USDA, NASS, Agricultural Statistics, 2008). 

One factor in the decline of rentals for both tenants and part-owners may 

be increasing rental costs as parcels of land available to rent become 

smaller over time because of division among heirs (Raup, 2003). Smaller 

parcels increase transaction costs for operators assembling land to expand 

their operations.

6Owner-operators renting to other 

farmers accounted for another 13 percent of cropland in the 1999 AELOS. 

Thus, rented land accounted for 64 

percent of all cropland in that year.

Figure 2.5

Methods of accessing land by sales class, 2007

Percent of farms in sales class

Notes: “Rents land, any method” includes land rented free of charge, not shown separately. 

Individual farms may rent for both cash and shares. Thus, the sum of the percent renting for 

cash and the percent renting for shares may total to more than the percent renting under any 

method. Similarly, farms may both own and rent land, so farms owning land plus farms renting 

land under any method sums to more than 100 percent.

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 

2007 Agricultural Resource Management Survey, Phase III.

Less

than

$10,000

$10,000 

to

$99,999

$100,000

to

$249,999

$250,000

to

$499,999

$500,000

to

$999,999

$1,000,000

or

more

0

20

40

60

80

100

Owns land

Rents land, any method Cash rents land

Share rents land
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Accessing Other Assets

Farmers require more than just land to operate; access to other assets—such 

as machinery and livestock leases and custom work—can be vital to their 

operations. Although only 2 percent of the smallest farms (sales of less than 

$10,000) leased machinery in 2007, the share increases steadily with sales to 

28 percent for million-dollar farms (fig. 2.7).

Custom work is any agricultural service farmers receive by paying for 

machinery and labor as a unit. Examples include fertilizer and pesticide 

application, sheep shearing, calf branding, land tillage, hay baling, and crop 

or livestock hauling (Aakre, 2005). Custom work is much more common than 

machinery leasing. More than half the farms with sales of $100,000 or more 

used custom work in 2007 (fig. 2.7). 

Livestock may also be rented to avoid committing capital. For example, a 

farm operator with pasture but no cattle might choose to rent cows—rather 

than buy them—and pay the rent in cash or with a share of the calves 

produced (Doye et al., 2009). Or a farmer with a cow herd may lease a 

high-quality bull to avoid the cost of buying one. As another example, 

almond growers rent colonies of bees for pollination rather than establish 

their own apiaries. 

Farms rent livestock infrequently, however, regardless of their sales levels. 

Only 1 percent of U.S. farms rented livestock, with little variation by farm 

size. Livestock rental is concentrated among high-value crop farms (43 

percent of all livestock renters), which lease bee colonies to pollinate fruit, 

vegetable, or tree crops; and beef operations (34 percent). 

Rental of machinery and the use of custom work among farms with sales of 

at least $100,000 (in 2007 dollars) has declined since the 1990s (fig. 2.8), 

though custom work was still performed on 56 percent of farms in 2007.

Figure 2.6

Leased farmland, 1982 to 2007

Million acres

Source: USDA, Economic Research Service, compiled from census of agriculture data. 

1982 87 92 97 2002 07

0

50

100

150

200

250

300

350

400

450

Portion leased by tenants

Leased farmland
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Federal Crop Insurance

While farmers can make individual decisions to mitigate the risk they face, 

such as using the legal organization to limit liability or engaging in contracts 

to reduce price risk, the Government also helps farmers by providing crop 

insurance and farm programs. Started in the 1930s as a response to the Great 

Depression and the Dust Bowl, Federal crop insurance has only recently 

become a major tool that farmers use to mitigate the risk they face. Since few 

farmers enrolled in the program in the early years, lawmakers sought to make 

Figure 2.7

Selected methods to access resources, 2007

Percent of sales class

1Leasing of tractors, vehicles, farm machinery and equipment, and storage structures. 

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 

2007 Agricultural Resource Survey, Phase III.

Less

than

$10,000

$10,000 

to

$99,999

$100,000

to

$249,999

$250,000

to

$499,999

$500,000

to

$999,999

$1,000,000

or

more

0

20

40

60

80

Livestock leasing

Machinery leasing1

Custom work

Figure 2.8

Selected methods used to access resources for farms with sales 

of $100,000 or more, 1991 to 2007

Percent of farms with sales of $100,000 or more1

1Sales are expressed in 2007 dollars, using the Producer Price Index for farm products 

to adjust for price changes.

2Leasing of tractors, vehicles, farm machinery and equipment, and storage structures.

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 

1991-1995 Farm Costs and Returns Survey and 1996-2007 Agricultural Resource Management 

Survey. 

Custom work

Machinery leasing2

Livestock leasing

1991 93 95 97 99 01 03 05 07

0

20

40

60

80

100
30

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the program more attractive by passing legislation in the 1980 Farm Act that 

expanded crop insurance to cover more crops and regions of the country 

while also introducing subsidies to lower farmers’ adoption costs. Although 

these incentives encouraged adoption, participation remained low, with 

farmers relying heavily on annual ad hoc disaster assistance bills to cover 

their crop losses.

In 1994, Congress passed the Federal Crop Insurance Reform Act (FCIRA). 

By both requiring crop insurance participation for Federal program eligibility 

and increasing subsidy levels to make crop insurance a more attractive option, 

participation greatly increased (fig 2.9). 

In 1996, some of the program eligibility restrictions were removed, leading to 

an immediate decrease in coverage. However, crop insurance has expanded 

since then to introduce new insurance products while subsidies have also 

increased, encouraging further adoption. 

To obtain crop insurance, a farmer must purchase a policy from 1 of 17 

private-sector insurance companies. Although these companies sell and 

service the individual insurance policies, the Government develops and/

or approves the premium rates, administers the subsidies, and reinsures the 

commercial insurance providers (USDA, RMA, 2010). 

Government Payments

Government policies have long been in place to address many farming 

issues, including land distribution, productivity, farmers’ standard of living, 

marketing, and more recently, conservation. Government programs can have 

both positive and negative consequences. On the one hand, government intervention may help ameliorate market failures such as information asymmetries 

(which could, for example, cause insurance or credit markets to fail) or externalities (e.g., preventing undesirable agricultural outputs, such as manure, 

from polluting the Nation’s air and water supplies). On the other hand, 

government intervention may cause farmers to modify their behavior—say, 

growing surplus crops or retiring land with marginal benefit to the environment—in ways that create inefficient resource allocations. Over time, policies 

Figure 2.9

Insurance coverage of all crops, 1989-2007

Source: USDA Risk Management Agency, Summary of Business Reports, 1989-2007.

1989 91 93 95 97 99 01 03 05 07

0

100

200

300

400

500

600

700

Acres

(million)

Total premiums

($10 million)

Subsidies

($10 million)

FCIRA passed, 

leading to major 

jump in participation
31

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have been adopted to support farm incomes, promote more environmentally 

beneficial production practices, account for increasingly high and fluctuating 

commodity prices, and address global pressures to reduce incentives that 

distort U.S. farmers’ production decisions. 

A Transition from Supply Management Programs 

Toward the Market

Prior to the 1980s, Government policies typically fell into two categories: 

supply management and price support programs. Supply management 

programs attempted to control the supply of agricultural goods (often by 

restricting land use) which, in theory, allowed the Government to manipulate 

prices. Price supports tended to come in the form of production or marketing 

quotas and nonrecourse commodity loans, often creating price floors for 

specific commodities. 

Beginning in the 1980s, supply management policies such as set-aside 

programs—whereby the Secretary of Agriculture made annual decisions regarding the percent of crop acreage that producers must idle for 

price support eligibility—fell out of favor, in part due to the difficulty of 

assessing their efficacy in increasingly global markets. As a result, the setaside programs were phased out by the mid-1990s, though the Conservation 

Reserve Program still pays farmers to idle cropland for conservation purposes 

(Gardner, 2002). 

Price support programs also underwent major changes beginning in the 

1980s. Prior to this time, Congress supported various commodity prices with 

the creation of price floors by making loans to farmers after the harvest, 

based on predetermined loan rates. In turn, farmers gave their crops to the 

Government as collateral. If commodity prices were lower than the loan rate, 

the farmers kept the loan and forfeited their crops. If commodity prices were 

higher, the farmers bought back their crops and sold them at market prices.7

However, commodity surpluses proved costly to store and, by the mid-1980s, 

policymakers began to structure agricultural policies to more closely align 

support programs with the marketplace, creating incentives for farmers to 

market their commodities rather than forfeit their crops. By the 1996 Farm 

Act, Congress had replaced most of the older price support and supply control 

programs with new commodity programs aimed at achieving income support 

independent of farmers’ production decisions (Dimitri et al., 2005). 

Today’s Programs

Two main types of programs categorize current Government payments to 

farmers: commodity-related and conservation. Commodity payments tend 

to reflect present or past production of specific commodities (mostly feed 

and food grains, cotton, and oilseeds). Commodity program payments make 

up the bulk of all Government payments to farmers. Between 1999 and 

2008, commodity payments fluctuated between 74 and 93 percent of total 

farm program payments, although the share of commodity payments has 

dropped in more recent years (see box, “Farmers Rely Less on Commodity 

Payments in Recent Years,” p. 32). The major commodity-related payments 

include the following:

7

A similar program is currently in 

effect for dairy products, whereby the 

CCC is authorized to purchase unlimited amounts of butter, nonfat dry milk, 

and cheese at set prices, effectively 

setting a price floor for these products 

(Miller and Blayney, 2006).
32

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• Direct payments (DPs) and countercyclical payments (CCPs) are based 

on the producer’s historical production; DPs are based on fixed rates set 

in farm legislation, while current prices determine CCPs. 

• Loan deficiency payments (LDPs) and marketing loan gains, collectively called “marketing loan benefits,” and Milk Income Loss (MILC) 

payments are tied to current prices and/or production. 

• Prior to the 2008 Act or disaster payments were made on an ad hoc basis 

to farmers when the Secretary of Agriculture determine that a region has 

qualified for disaster assistance. The 2008 ACT introduced a permanent 

emergency disaster program—the Supplemental Agricultural Disaster 

Assistance program.

Conservation payments are designed to promote environmentally sound farm 

business practices, with programs geared toward reducing soil erosion, improving 

air and water quality, and maintaining and improving wildlife habitats. 

• Land-retirement programs—the largest being the Conservation Reserve 

Program (CRP)—aim to retire environmentally sensitive land from 

production.8

• Working-land programs aim to enhance the farm operators’ resource 

management on cropland and grazing lands currently in production.

In 2007, roughly 60 percent of all conservation payments consisted of landretirement program funds dedicated to the CRP, although the majority of recent 

increases in conservation payments have accrued to the working-land programs. 

Historic Trends

Although farm policy and farm programs have evolved since their introduction in 1933, farm programs have continually focused on supporting farm 

income and stabilizing commodity prices. While their share of total gross 

cash farm income (GCFI)—the sum of receipts from the sale of crops, 

livestock, and farm-related goods and services, plus commodity (including 

disaster) and conservation payments—is low, these payments can be an 

important source of income for farmers participating in the programs. 

8Other land retirement programs 

include the Wetlands Reserve Program 

(WRP), the Farmable Wetlands 

Reserve Program (FWP), and the 

Conservation Reserve Enhancement 

Program (CREP).

While commodity program payments made up at least 70 percent of total government 

payments to farmers between 1996 and 2008, higher commodity prices and legislated 

decreases in payment acres for direct and Average Crop Revenue Election (ACRE) 

payments—combined with overall increases in conservation program expenditures in 

more recent years—have helped to reduce the share of commodity program payments 

to between 51 and 57 percent of all payments made to farmers. These market and 

policy changes have caused farmers to rely less heavily upon government payments 

as a source of both farm business and farm household income in 2009 and 2010 (with 

a similar forecast for 2011).

Farmers Rely Less on Commodity Payments in 

Recent Years
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From 1982 to 2007, direct government payments’ share of GCFI twice 

reached as high as 10 percent (fig. 2.10), first in 1987, just after the end of the 

farm financial crisis (generally dated from 1982 to 1986) and then in 2000, a 

result of large disaster and emergency payments in response to weak export 

demand and widespread crop failures (Gardner, 2002). Low commodity 

prices triggered high payments from 1998 to 2001, as well as in 2005, when 

government payments reached nearly 9 percent of GCFI. By 2007, government payments made up less than 4 percent of GCFI. 

Annual Variation in Program Payments

Total payments made in any given year depend on programs’ eligibility 

criteria, payment formulas, market and weather conditions, and the production and management choices of individual operators. As a result, they can 

fluctuate greatly from year to year (fig. 2.11).

For example, in 2000—a poor year for farming—government payments 

totaled $28 billion (measured in 2007 dollars), reflecting low commodity 

Figure 2.10

Government payments as a share of gross cash farm income, 1982-2007

1Deflated with GDP chain-type price index. Deflating with the GDP price index shows the 

purchasing power of government payments relative to the rest of the economy

Source: USDA, Economic Research Service, U.S. and State farm income data. 

1982 85 88 91 94 97 2000 03 06

0

5

10

15

20

25

30

Total government payments 

(billions of 2008 dollars)1

Government payments’

share of gross cash farm

income (percent)

Figure 2.11

Annual variation in program payments by calendar year, 1999-2007

$ billion

Note: Deflated with GDP chain-type price index. Deflating with the GDP price index shows 

the purchasing power of government payments relative to the rest of the economy. 

PFC = Production flexibility contract payments.

Source: USDA, Economic Research Service, U.S. and State farm income data.

1999 2001 03 05 07

0

2

4

6

8

10

12

Marketing loan benefits

Conservation payments

PFC & commodity 

direct payments

Ad hoc and emergency payments
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prices and widespread crop failures. In contrast, government payments were 

only $12 billion in 2007, a relatively good year for farming. Some programs 

remain relatively static with foreseeable payment levels, while other programs 

fluctuate greatly depending on prices and the weather.

Variable Programs

Payments from programs designed to aid farmers with price and revenue risk 

can fluctuate greatly from one year to the next. The marketing assistance loan 

and LDP programs were introduced to encourage farmers to market their 

crops rather than forfeit them to the government. Similarly, countercyclical 

payments, introduced in the 2002 Farm Act, were designed to stabilize farm 

revenues. Periods of relatively low prices, such as those experienced in 2005, 

cause LDP, marketing loan gains, and countercyclical payments to rise, while 

high prices reduce these program payments. 

The most variable commodity payments, the pre-2008 ad hoc and emergency 

payments, were triggered by severe weather or other natural (and occasionally, market) disasters. In most years, these payments have remained relatively low. When disaster strikes, however, ad hoc and emergency payments 

could easily eclipse other commodity payments. For example, in 1999 

through 2001, annual disaster and emergency assistance payments totaled 

between $10 billion and $11 billion (in 2007 dollars), representing nearly 40 

percent of all commodity payments in each of those years. 

Stable Programs

In contrast to payments triggered by market swings or natural disasters, 

some commodity payments exhibit relative stability. Direct payments—introduced in 2002 and based on historical production and yields for individual 

farms—evolved from production flexibility contract (PFC) payments, introduced in 1996. Annual PFC and direct payments range within a fairly narrow 

band, from $5 billion to $8 billion (2007 dollars). These payments no longer 

fluctuate due to changes in prices, as did the commodity-specific payments 

they replaced (see box, “Transition to Production Flexibility and Direct 

Payments,” p. 35).

As a rule, conservation program payments fluctuate much less than 

commodity program payments. Enrollment in the Conservation Reserve 

Program (CRP) requires a long-term commitment (currently 10-15 years), 

during which the landowner agrees to idle crop land and follow specified 

conservation practices such as planting environmentally friendly cover crops, 

creating grass waterways, or generating buffer strips. In turn, the landowner receives a predetermined “rental” fee from the Government based on 

the agricultural rental value of the land. The long-term nature of the CRP 

contracts lends stability to aggregate payments.

Before the introduction of the Conservation Reserve Program in 1986, 

conservation program payments made up only 2 percent of all government 

payments made to farmers. With CRP, total conservation payments rose to 

roughly 9 percent of government payments. Recent increases in funding for 

working-land programs such as the Environmental Quality Incentive Program 

(EQIP) and the Conservation Security Program (CSP) have helped raise total 
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conservation program spending from $2.2 billion in 2003 to over $3 billion 

by 2007, more than a fourth of total agricultural program payments.

Who Receives Government Payments?9

In 2007, total Government payments comprised almost 4 percent of total 

gross cash farm income (GCFI). This masks the importance of Government 

payments for some farms (fig. 2.12). 

Because most support programs tie Federal assistance to specific commodities and production levels (either past or present), larger farms collect higher 

levels of Government payments. As farm size increases, however, GCFI tends 

to increase faster than Government payments, so the share of GCFI coming 

from Government payments tends to drop. 

Overall, only 39 percent of farms participated in farm programs in 2007, 

ranging from 23 percent of farms with sales less than $10,000 to 79 percent 

of farms with sales of $250,000-$500,000. Participation rates increase 

with farm size largely because of their heavy participation in commodity 

programs. Participation in conservation programs, in contrast, remains relatively low (14-29 percent in 2007) for all size groups.

According to the ARMS data, in 2007 operators of farms with sales above 

$250,000 harvested more than three-fourths of the total acres of program 

crops—barley, canola, corn, cotton, oats, peanuts, rice, sorghum, soybeans, 

and wheat. As a result, these farmers received roughly 71 percent of 

9To examine who receives 

Government payments, we use the 

2007 ARMS data, which furnish 

detailed information on the farms’ 

characteristics—including government 

payment receipts—as well as farm 

operator and household characteristics. 

Since ARMS contacts only farm operators, however, it excludes government 

payments made to people who do not 

farm, mainly nonoperator landlords. 

Before 1996, most program payments were coupled to production decisions. These 

links were broken in the 1996 Farm Act, which tied PFC payments (and later, direct 

payments) to historical production and yields. After 1996, farmers have received 

roughly between $4 billion and $7 billion per year, irrespective of market conditions. 

Transition to Production Flexibility 

and Direct Payments

Government 

payments ($ billion)

Source: USDA, Economic Research Service, Direct government payments, by program: 1996-2007

Crops Producer Price Index (CPPI, 1990-92 = 100)

Black dots represent commodity specific payments made through 

programs coupled to production decisions (pre-1996). These dots 

show a strong negative relationship between payments and prices. 

Note, however, that the CPPI captures the prices of all crops, not

just those eligible for commodity programs, which may help explain 

why changes in the commodity specific payments do not correspond 

exactly to movements in the price index prior to 1996.

Blue markers denote 

Production Flexibility Contract 

payments (1996-2002) and 

direct payments (2002-2007). 

Note the lack of a relationship 

between prices and payment

levels.

0

2

4

6

8

10

12

14

80 100 120 140
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commodity-related payments. In contrast, farmers of operations with sales 

below $100,000 received 59 percent of all conservation payments, including 

74 percent of land-retirement payments. Meanwhile, working-land conservation program payments followed the pattern of commodity program 

payments—farms with sales above $250,000 received nearly 60 percent.10

The Impact of Farm Commodity 

Program Payments

Understanding the impact of farm commodity program payments is no easy 

task. Many confounding factors are difficult to unravel and, as a result, 

research results are divided on how program payments affect farmers, their 

enterprises, and the subsequent impacts on farm household incomes. Even 

when consensus exists about how a payment affects farmers, estimates of the 

size of the effects often vary widely. Some payments may go straight into a 

farmer’s pocketbook, directly increasing his or her household income. Other 

payments may take a much less direct route, and may, in fact, cause expenses 

to increase (such as land rental rates), decreasing the payment’s overall 

impact on farmer household well-being.

Program payments have the potential to affect farmers, farmers’ households, 

and their production decisions on many levels. For some farmers, payments 

may provide opportunities to increase the size of their operation. A steady 

stream of income may allow recipients to gain access to higher levels of 

credit or may allow them to increase their rental or purchase bids for land. 

This may provide opportunities for them to increase in size while driving out 

10For more information on the distribution of government payments, see 

the report Structure and Finances of 

U.S. Farms, Family Farm Report, 2010 

Edition (Hoppe and Banker, 2010).

Figure 2.12

Government payments as a share of gross cash farm income by farm size, 2007

GCFI = Gross cash farm income.

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 2007 Agricultural Resource Management Survey, 

Phase III.

Less

than

$10,000

$10,000 

to

$99,999

$100,000

to

$249,999

$250,000

to

$499,999

$500,000

to

$999,999

$1,000,000

or

more

Median Government payment 

on participation farms ($1,000)

Government payments’ share (percent) 

of GCFI on participation farms

In 2007, Government payments made up 

more than one-quarter of GCFI for participating farms with sales below $10,000, 

even though the median level of Government payments received by participating 

farms in this sales class barely topped 

$1,300. At this low level of sales, farm

income, with or without Government 

payments, does not generally make up a 

major source of household income.

In contrast, the median level of Government 

payments for participating farms with sales 

over $1 million reached $42,000 in 2007.

The large size of these farms meant that, on 

average, they received only 2.5 percent of 

their GCFI from government payments. 

0

10

20

30

40

50

0

10

20

30

40
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competition from smaller farms that don’t have access to the same levels of 

capital, which can impact the overall structure of agriculture. 

Owners of land—not necessarily farm operators—may be able to capture 

some, most, or even all of certain types of payments by raising land prices 

and rental rates. As a result, certain policies aimed at increasing farm household income may not reach the intended target population, going to landlords 

instead.11

11For example, under the Federal 

Agricultural Improvement and Reform 

Act of 1996, Title 1, Section 101 (b) 

entitled “Purpose,” states: “It is the 

purpose of this act to authorize the use 

of binding production flexibility contracts between the U.S. and agricultural 

producers to support farming certainty 

and flexibility while ensuring continued compliance with farm conservation and wetland protection requirements.” This suggests that these PFC 

(currently known as DP) payments are 

targeted toward farm operators (those 

producing agricultural goods) rather 

than those who only supply one input 

(land) to the production process (i.e., 

landlords). More recent legislation 

targets certain Government programs 

to those “actively engaged” in farming. 

A landlord with a cash rental arrangement is, by definition, not actively 

engaged in farming. See O’Donoghue 

et al., 2009b, for a discussion of the 

term “actively engaged.”
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Chapter 3

Specialization and Concentration 

of Production

A fundamental decision by farmers—what to produce—has wide-ranging 

implications for what the farm looks like, how it is organized, and its longterm success. Factors like agronomic concerns, market availability, the planning time horizon, and land quality influence this decision.

If overall cropping is too specialized, a farmer may lose everything in a 

particular year due to a specific disease or infestation. Producing a small 

number of commodities may also require a more intensive use of inputs; for 

example, continuous corn requires higher levels of fertilizers than a cornsoybean rotation. However, specialization also has its benefits. Farmers can 

become expert in growing just a few crops, maximizing output, minimizing 

the different types of capital (machinery, buildings, etc.) required for production, and economizing on time. As a result, farmers may reduce costs and 

capture some efficiencies by concentrating on the production of a smaller 

number of commodities or a specific phase in the production of a single 

commodity. Farmers must weigh the pros and cons of specialization and 

choose a level of specialization where they are comfortable. As a result, the 

level of specialization differs across producers. 

Trends in Farm Specialization

While the Nation produces a wide variety of commodities, farms have 

become more specialized over the past 30 years—the share of farms 

producing a particular commodity has generally decreased (fig. 3.1). Despite 

these trends, the number of acres cultivated of particular crops has remained 

relatively constant. To examine these trends among farms with significant 

Figure 3.1

Recent trends in specialization among farms with at least $1,000 in sales, 1982-2007

Percent of farms with 

sales > $1,000

Note: the blue lines represent an upward movement in the trend while the black lines represent a drop in the trend line.

Source: USDA, Economic Research Service, compiled from U.S. Bureau of the Census, 1982 Census of Agriculture and USDA, National 

Agricultural Statistics Service, 2007 Census of Agriculture.

Corn 35

Soybeans 25

Wheat 22

Beef cattle 42

Broilers 1

Hogs 15

Milk cows 13

Percent of farms with 

sales > $1,000

23

18

4

11

42

5(m)

2(b)

 Vegetables 3 4(h)

1982 87 92 97 2002 07 1982 87 92 97 2002 07
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production, we focus on farms with sales above $1,000, eliminating a considerable number of farms: 254,000 in 1982 and 688,800 in 2007.1

Of all farms that sold at least $1,000 worth of agricultural goods in 1982, 

roughly 35 percent grew corn; by 2007, fewer than 23 percent of these farms 

grew corn. The share of farms growing soybeans fell from more than 25 

percent in 1982 to 18 percent in 2007, and the share of farms cultivating 

wheat dropped at rates similar to the share growing corn.

Livestock farms experienced similar trends over 1982-2007. While the 

share of farms raising broilers exhibited a small increase over the 25-year 

period, likely due to the significant increase in demand for the commodity, 

the percent of farms with hogs and milk cows fell considerably. The share of 

farms producing beef cattle, by far the most common commodity raised on 

farms, fluctuated around 42 percent throughout the period. 

Specialization and Farm Size

While the share of farms growing a particular commodity has generally 

dropped over the past 30 years, specialization also appears to differ across 

farm sizes. Data from the Agricultural Resource Management Survey 

(ARMS) suggest that specialization at a given point in time decreases with 

farm size (Hoppe et al., 2007). In 2004, about three-fifths of family farms 

with sales of $100,000 or more produced 3 or more commodities, while 75 to 

85 percent of the smaller family farms produced 1 or 2 commodities, possibly 

a function of the acres at their disposal.2

The relationship between farm size and specialization varies by commodity, 

particularly when viewed over time. Melhim et al. (2009b) found that 

between 1992 and 2002, the industry average specialization levels (or share 

of farms growing) dropped for apple, dairy, and wheat farms. However, the 

largest farms in these industries diversified the least over time (making them 

relatively more specialized in comparison to smaller apple and dairy farms). 

In contrast, for almost all farm sizes (except the smallest corn farms), beef 

and corn farms became more specialized over this timeframe. Despite the 

differences across commodities, the smallest farms generally remained the 

most specialized over the period examined (Melhim et al., 2009a/b).

Geographic Specialization

Specialization occurs not only at the farm level, but also at a State or regional 

level. Some geographic specializations are longstanding and were established 

by the late 1800s, reflecting local comparative advantages in the production of specific commodities (Cochrane, 1993). However, these geographic 

specializations can change over time, shifting production from one region of 

the country to another due to changes in technology (for example, pesticides 

that contributed to the elimination of the boll weevil), climate, markets (e.g., 

population growth in the West), and/or business arrangements. 

If production becomes geographically concentrated, the byproducts of 

production, such as manure or chemical use (including nutrients and pesticides), also become more localized. These changes have implications 

both in terms of the Nation’s waterways (the potential for water pollution) 

1The increase in the number of farms 

in recent years was almost entirely 

due to the addition of point farms, as 

discussed later in this chapter.

2Estimates from Hoppe et al. (2007) 

were recalculated to exclude point 

farms.
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and for those living nearby (the potential for air pollution). These issues 

warrant a clear understanding of current geographic trends in commodity 

specialization.

State Shares

Figures 3.2a and 3.2b (for crops and livestock respectively) show how U.S. 

production of various commodities has changed over time. Each dot represents a State’s share of production of the commodity in both 1982 (horizontal axis) and 2007 (vertical axis). States with an increasing share of the 

commodity’s production between 1982 and 2007 lie above the 45-degree line, 

while those with a decreasing share lie below it. 

Figure 3.2a

National geographic changes in selected crops, 1982-2007

0

10

20

30

40

0 10 20 30 40

Percent of U.S. corn production, 1982

MN

IA IL

IN

NE

KS OH

0

10

20

30

40

0 10 20 30 40

Percent of U.S. soybean production, 1987 

MN

SD

IA

IL IN

NE

MO

OH

0

10

20

30

40

0 10 20 30 40

Percent of U.S. wheat production, 1987

MT

TX

ND

SD

WA

KS

OK

0

10

20

30

40

0 10 20 30 40

Percent of U.S. cotton production, 1982

LA

AR GA

TX

CA

AZ

MS NC

Percent of U.S. soybean production, 2007

Percent of U.S. wheat production, 2007

Corn Cotton

Soybean Wheat

Each dot represents a State’s share of production of a crop in both 1982 (horizontal axis) and 2007 (vertical axis). States with an increasing share 

between 1982 and 2007 lie above the 45 degree line.

Source: USDA, Economic Research Service, compiled from U.S. Bureau of the Census, 1982 Census of Agriculture and USDA, National

Agricultural Statistics Service, 2007 Census of Agriculture.

Percent of U.S. cotton production, 2007

Percent of U.S. corn production, 2007
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Overall, changing technology, business arrangements, and climate have 

altered where commodities are produced. Corn and soybean production 

has shifted westward, cotton production has shifted eastward, and wheat 

production has shifted northward (fig. 3.2a). In livestock, hog production 

has shifted eastward, dairy production has shifted westward, cattle sales 

have moved toward the South and Central Plains, and poultry has moved 

southward (fig. 3.2b). 

County Shares

Given the shifting of production around the country, examination of countylevel concentrations is necessary to unearth the potential for excessive 

Figure 3.2b

National geographic changes in selected livestock, 1982-2007 Percent of U.S. cattle sales, 2007 Percent of U.S. poultry sales, 2007 Percent of U.S. diary sales, 2007

Each dot represents a State’s share of production of a crop in both 1982 (horizontal axis) and 2007 (vertical axis). States with an increasing share 

between 1982 and 2007 lie above the 45 degree line.

Source: USDA, Economic Research Service, compiled from U.S. Bureau of the Census, 1982 Census of Agriculture and USDA, National

Agricultural Statistics Service, 2007 Census of Agriculture.

Percent of U.S. hog sales, 1982

0

10

20

30

40

0 10 20 30 40

Percent of U.S. dairy sales, 1982

MN

TX

CA

PA ID NY

MI

WI

NM

0

10

20

30

40

0 10 20 30 40

Percent of U.S. cattle sales, 1982

NE

TX

CA

SD

KS

CO

OK IA

0

10

20

30

40

0 10 20 30 40

Percent of U.S. poultry sales, 1982

NC

CA

GA

AL AR MS

TX

PA

Cattle sales Poultry sales

Hog sales Dairy sales

Percent of U.S. hog sales, 2007

0

10

20

30

40

0 10 20 30 40

MN

NC

IA

IN IL

MO NE OK
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manure production or chemical use. To do so, we calculate the fewest number 

of counties required to produce 25 percent, 50 percent, and 75 percent of total 

U.S. production of various commodities (see table 3.1). 

Overall, substantial local geographic specialization occurred between 1982 

and 2007 in the livestock sectors, including the cow-calf (cattle less than 

500 pounds), dairy, fed cattle, and hog sectors. Broilers appear to be the 

exception, with larger numbers of counties required to capture 25, 50, and 

75 percent of production. Crops, on the other hand, have a much more mixed 

set of results. Rice and soybeans remain fairly stable over time, while wheat 

production appears to have concentrated geographically. Meanwhile, larger 

numbers of counties produce 25, 50, and 75 percent of corn production as 

well as all levels of cotton production, likely due to higher plantings generally. Cotton’s shift eastward—made possible by the eradication of the boll 

weevil in the South and drought in competing areas of the West—may also 

have played a role in its adding counties as production shifted from an area 

with larger counties (California) to the smaller counties of the Southeast.

Specialization has caused changes in how farm businesses are run and what 

the different farm sectors look like. At the individual farm level, the share of 

farms producing a particular commodity has dropped significantly, and farms 

do not produce as wide an array of outputs today as they did 100, or even 25, 

years ago. Production is also moving around the country, with shifts in many 

farm sectors toward production that is concentrated in fewer counties. 

Table 3.1

Local geographic specialization: The minimum number of counties that produce 25, 50, and 75 percent of 

U.S. production, 1982 and 2007

Production = number of head sold

Production = number 

of milk cows

Broilers Cattle, < 500 lbs. Cattle, fattened Hogs Milk cows

1982 2007 1982 2007 1982 2007 1982 2007 1982 2007

25% 15 26 186 77 22 15 71 21 50 17

50% 45 72 556 367 90 46 214 81 174 80

75% 112 156 1186 948 278 139 508 220 511 246

100% 3,034 2,046 3,058 3,039 3,022 2,539 3,031 2,918 3,034 2,529

Production = acres harvested

Corn for grain Cotton Rice Soybeans Wheat

1982 2007 1982 2007 1982 2007 1982 2007 1982 2007

25% 95 99 11 15 9 8 100 105 64 50

50% 244 257 36 47 21 17 265 268 178 139

75% 505 523 85 123 39 33 530 509 416 305

100% 2,825 2,634 615 627 157 135 2,182 2,039 2,803 2,481

This table shows the minimum number of counties that generate 25, 50, and 75 percent of production within the various agricultural sectors, 

along with the total number of counties that produce the commodity. Numbers in regular typeface represent industries that are consolidating – 

with fewer counties required to hold the requisite percent of production. Values in red typeface represent industries that are spreading out more – 

with larger numbers of counties required to hold the requisite percent of production. For example, in 1982, the 71 largest hog-producing counties 

generated 25 percent of the hogs sold in the United States. By 2007, production had consolidated, so now only the largest 21 hog-producing 

counties were required to capture 25 percent of the hogs sold in the United States. In contrast, in 1982, 15 counties held one-fourth of all broiler 

production. By 2007, this number had expanded to 26 counties (although the total number of counties with broilers did drop from 3,034 to 2,046).

Source: Economic Research Service calculations based on U.S. Census Bureau, 1982 Census of Agriculture; and USDA, National Agricultural 

Statistics Services, 2007 Census of Agriculture.
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Trends in the Size Distribution 

of Farms and Sales

We use sales to measure economic activity rather than the other commonly 

used measure, land (Hoppe et al., 2010). Farmland varies in quality, can 

be farmed at different levels of intensity, and can produce a wide variety of 

products. Thus, the value of production per acre can vary greatly from farm 

to farm.

To properly examine the change in farm sizes over time, we need to adjust 

sales for price changes. Any change in sales is made up of two components: 

a price change and a quantity change. To eliminate price changes and to 

compare sales levels accurately over time, we use the Producer Price Index 

for Farm Prices (PPIFP) to express every year’s farm sales in 2007 dollars. 

This produces quantity, or real, changes in farm size. 

Distribution of Farms and Sales

Farm numbers and acres per farm stabilized in recent decades largely 

because of an influx of farms with annual sales less than $1,000—point 

farms—and a smaller increase in the number of farms with sales of $250,000 

or more, nearly offsetting a large decrease in the number of farms with sales 

from $10,000 to $249,999 (table 3.2). Farms with sales of at least $1 million 

more than tripled between 1982 and 2007, though at 55,500 total they still 

represented just 3 percent of the U.S. farm count in 2007.

The distribution of farm sales also shifted upward to million-dollar farms 

(fig. 3.3), whose share of market value increased from 27 percent in 1982 to 

59 percent in 2007. In contrast, farms generating agricultural products with 

a market value of less than $10,000 consistently accounted for only 1 or 2 

percent of the U.S. total sales between 1982 and 2007, despite their growing 

numbers. Farms with sales of $10,000-$249,999 experienced the largest loss 

Table 3.2

Number of farms, by constant-dollar class, 1982 and 2007

Sales class (2007 dollars)1 1982 2007 Change

Number Percent

Total farms 2,240,976 2,204,793 -1.6

Less than $10,000 954,349 1,319,161 38.2

 Point farms2 254,097 688,834 171.13

 $1,000-$9,999 700,252 630,327 -10.0

$10,000 to $249,999 1,137,892 675,973 -40.6

$250,000 to $999,999 132,544 154,150 41.0

$1,000,000 or more 16,191 55,509 242.8

1Sales classes are defined in 2007 dollars, using the Producer Price index for farm products to 

adjust for price changes.

2Point farms have sales below $1,000 (current dollars), but are still considered farms because 

they would be expected to normally sell at least that much. Point farms are identified using current 

dollars because the minimal level of sales in the farm definition is not adjusted for price changes.

3 See box, “Counting Farms: Methodological Changes”

Source: USDA, Economic Research Service, compiled from U.S. Census Bureau, 1982 Census 

of Agriculture and USDA, National Agricultural Statistics Service, 2007 Census of Agriculture.
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in market share, approximately 27 percentage points. Nevertheless—despite 

their dominance of the production landscape—too many million-dollar farms 

exist for any single farm to exert market power (Hoppe et al., 2008). 

Production per Farm

The growing number of both large commercial farms and very small farms 

that produce little in the aggregate means that production is shifting from a 

large number of smaller farms to fewer, larger farms—measured by sales—

as the number of midsized farms declines. The shift of production to fewer 

and larger farms has been underway for generations. For example, in 1900, 

it took almost 1 million farms in the United States to generate half of all the 

market value of agricultural products sold (Peterson and Brooks, 1993). By 

1987, fewer than 76,000 farms were needed and by 2007, fewer than 33,000 

farms produced half of the market value of agricultural goods sold (fig. 3.4). 

However, farmers running these 33,000 farms have not notably increased 

the average number of acres they operate. The typical (average) size of these 

large farms has plateaued, likely reflecting a combination of production 

efficiencies and managerial constraints. The number of acres (on the farms 

generating half of the Nation’s market value of agricultural products sold) 

required to generate these levels of sales has remained relatively stable at 

2,500 to 3,000 acres per farm since 1987. While the average acreage of these 

farms has plateaued, their share of total land in farms dropped from more 

than 22 percent in 1987 to roughly 10 percent by 2007. Farms of this size 

often produce high-value crops (vegetables, fruits, tree nuts, and nursery/

greenhouse products), beef (mostly feedlots), dairy products, hogs, and 

poultry and eggs—commodities that can be produced on relatively few acres 

(Hoppe et al., 2008). 

While the previous measure shows that the production per farm has, on 

average, increased greatly over time, we next explore whether or not these 

increases held across a wide spectrum of agricultural sectors by generating 

Figure 3.3

Share of market value of agricultural products sold and farm numbers, by constant-dollar sales class,1 

1982-2007

Percent of U.S. total

1Sales classes are defined in 2007 dollars, using the Producer Price index for farm products to adjust for price changes. Point farms are defined 

here in current dollars—rather than constant dollars—because they are identified in each census based on current dollars. 

Source: USDA, Economic Research Service, compiled from census of agriculture data.

1982 87 92 97 2002 07

0

10

20

30

40

50

60

70

1982 87 92 97 2002 07

0

10

20

30

40

50

60

70

Percent of U.S. total

Share of market value Share of farm numbers

$1,000,000 or more

$250,000-$999,999

$10,000-$249,999

Less than $10,000
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two indices: an index of production and an index of the number of producers. 

By comparing the two indices, we can explore how levels of production 

changed with changes in the number of farms producing the commodity. The 

divergence of the two indices in figure 3.5 shows that the large increases in 

production per farm held across many different commodities over time. 

For example, while the number of broiler producers dropped marginally 

from 1982 levels, broiler production increased by over 250 percent from 

1982 to 2007. While the production per farm has generally increased across 

a wide variety of outputs, important differences exist between commodities. Fed-cattle production, unlike broilers, remained relatively stable while 

the number of producers dropped precipitously from 1982 levels. In other 

commodities—such as dairy and tobacco—both production and the number 

of producers decreased from 1982 levels. Nevertheless, across all commodities, with few exceptions, production per farm increased, often substantially.

Increasing Size of Enterprise

While we have evidence that production per farm has increased over time, 

we need a measure to show how production is shifting to ever larger farms. 

Because production is heavily skewed to large commercial farms, comparisons of the mean (or average) farm size are at best, uninformative, and can 

easily be misleading. One way to explore changes in farm size over time is to 

use physical measures of outputs—such as bushels, head of animals sold, or 

herd size—eliminating the need to control for price changes. 

One measure expressed in physical units is enterprise size.3 We adopt a 

measure coined by Lund and Price (1998), the “mid-aggregate point,” to 

calculate the enterprise size where half of production takes place on enterprises larger than the mid-aggregate point and half of production takes place 

on smaller enterprises (table 3.3).4

3An enterprise is the portion of the 

farm operation dedicated to producing 

a particular commodity. For example, 

if a farm grows corn and soybeans, the 

corn enterprise would include only the 

acres dedicated to growing corn.

4While Lund and Price (1998) 

coined the term “mid-aggregate point,” 

the measure they use was originally developed and used in both the industrial 

organization and labor literature in the 

early part of the 20th century.

Figure 3.4

Number of farms that account for half of the year’s farm product sales1, their average acreage, 

and their percent of total land in farms

1This figure shows the smallest number of farms that account for 50 percent of farm product sales, measured as the market value of agricultural 

products sold, excluding government payments. 

Source: USDA, Economic Research Service, compiled from Census of Agriculture data.

0

10

20

30

40

50

60

70

80

1987 92 97 2002 07

Number of farms 

(1,000)

0

5

10

15

20

25

1987 92 97 2002 07

Percent of total land in

farms on these farms

Average acres of 

these farms (1,000)
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Figure 3.5

Production index and number of producers index, 1982 = 100

Percent

Note: Plots of the number of producers (blue lines) and total production levels (black dotted lines) relative to 1982 levels for various commodities.

These plots show how, over time, production is getting concentrated into fewer, larger farms.

Source: USDA, Economic Research Service, compiled from U.S. Census bureau, 1982 Census of Agriculture and USDA, National Agricultural 

Statistics Service, 2007 Census of Agriculture.

1982 87 92 97 2002 07 1982 87 92 97 2002 07 1982 87 92 97 2002 07 1982 87 92 97 2002 07 1982 87 92 97 2002 07

0

50

100

150

200

250

300

0

50

100

150

200

250

300

0

50

100

150

200

250

300

0

50

100

150

200

250

300

Broilers 

(birds sold)

Cattle, all

(head sold)

Cattle, fed 

(head sold)

Hogs 

(head slaughtered)

Milk cows

(head on farm)

Corn 

(bu. harvested)

Soybeans 

(bu. harvested)

Wheat 

(bu. harvested)

Cotton, all 

(bales harvested)

Rice, all

(cwt. harvested)

Almonds 

(acres harvested)

Grapes 

(acres harvested)

Oranges 

(acres harvested

Sweet corn 

(acres harvested)

Vegetables for sale

(acres harvested)

Dry edible beans

(cwt. harvested)

Peanuts

(lbs. harvested)

Sugar beets

(tons harvested)

Sunflower seed 

(lbs. harvested)

Tobacco

(lbs. harvested)

Production

Producers
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Livestock

The increasing size of livestock operations is well documented and 

is reflected in our estimates of the mid-aggregate enterprise size. For 

example, in 1987, the mid-aggregate broiler enterprise sold 300,000 birds. 

By 2007, mid-aggregate annual sales had risen 127 percent to 681,600 

birds per farm. The most dramatic growth, however, occurred in hog and 

dairy production. Mid-aggregate hog sales went from 1,200 head in 1987 

Table 3.3

Mid-aggregate enterprise sizes for selected commodities, 1987-2007 

Selected 

commodity

Census year Change

1987 to 

1987 1992 1997 2002 2007 2007

Mid-aggregate annual sales1 (head per farm) Percent

Poultry/livestock:

 Broilers 300,000 384,000 480,000 520,000 681,600 127

 Hogs 1,200 1,880 11,000 23,400 30,000 2,400

 Fattened cattle 17,532 23,891 38,000 34,494 35,000 100

 Cattle, < 500 lbs. 50 60 65 84 128 156

Mid-aggregate herd size2 (head per farm)

Dairy production 80 100 140 275 570 613

Mid-aggregate acres harvested3 (acres per farm)

Field crops:

 Corn 200 300 350 450 600 200

 Soybeans 243 300 380 480 490 102

 Wheat 404 562 693 784 910 125

 Cotton 450 605 800 920 1,090 142

 Rice 295 400 494 607 700 137

Vegetables:

 Asparagus 160 200 200 236 240 50

 Lettuce 949 1,168 1,461 2,225 1,815 91

 Bell peppers 88 130 180 200 300 241

 Potatoes 350 422 556 810 990 183

 Sweet corn 100 120 173 222 250 150

 Tomatoes 400 450 589 700 820 105

Tree crops:

 Apples 83 94 122 129 146 76

 Almonds 203 234 292 361 450 122

 Oranges 450 732 769 1,015 1,113 147

 Peaches 92 95 100 105 120 30

Note: Census records do not have all the data necessary to derive the mid-aggregate enterprise size prior 

to 1987.

1Mid-aggregate head sold. Half of the sales of a given species were from farms with more sales and half 

were from farms with sales less than the mid-aggregate total.

2Mid-aggregate head of dairy cows as of December 31 of the census year. Includes dry cows and cows in 

milk.

3Mid-aggregate acres harvested. Half of all harvested acres of a commodity were on farms harvesting more 

acres and half were on farms harvesting fewer acres than the mid-aggregate total.

Source: USDA, Economic Research Service, compiled from census of agriculture data.

Tomatoes provide a good example for why the mid-aggregate 

enterprise size makes sense, 

as opposed to using simple 

means. By 2007, the average 

tomato enterprise size dropped 

to 17 acres, down from 26 acres 

in 1987. In contrast, because 

production had been shifting to 

larger farms over time, the midaggregate enterprise size had 

grown from 400 acres in 1987 to 

820 acres by 2007, a 105-percent increase.

In 1987, half of all hogs were 

produced on farms that sold 

1,200 head of hogs or more. 

Significant changes in the hog 

sector led to half of all hogs being produced on farms selling 

30,000 hogs or more by 2007. 

This was by far the largest increase experienced by any major agricultural commodity.
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to 30,000 head by 2007, a 2,400-percent increase, while dairy farms 

underwent a 613-percent increase.

Crops

Production has also shifted to larger farms for crop enterprises over the 

last 30 years. The mid-aggregate enterprise growing corn grew from 200 

acres of corn per farm in 1987 to 600 acres by 2007, a 200-percent increase. 

Similarly, enterprises producing cotton grew from a mid-aggregate size of 

450 acres of cotton to nearly 1,100 acres in 2007, an increase of more than 

140 percent. Even fruit and vegetable enterprises experienced significant 

increases over time. Farms with bell peppers, for example, increased their 

mid-aggregate enterprise size by over 240 percent, from 88 acres in 1987 to 

300 acres by 2007. Other fruit and vegetable enterprises—such as almond, 

potato, and tomato—also more than doubled their midpoint size (table 3.3).

What Are Some of the Drivers of Change?

One reason farmers specialize is to take advantage of efficiencies and lower 

costs. By specializing in fewer commodities, farmers can become more 

expert at production, current in technology, and adept at managerial skills. 

Despite the trend toward larger farms and greater specialization, there are 

advantages to diversifying. Agronomic concerns may lead a farmer to produce 

multiple crops in rotation, such as corn-soybeans. Corn uses nitrogen (N) to 

grow, while soybeans fix N into the soil and ready the soil for the next corn 

crop. Also, diversifying can allow for the full use of fixed inputs. For example, 

labor, land, or machinery may be idle at certain points in the year for a single 

crop—planting crops with different lifecycles can minimize the idling of 

inputs. Additionally, producing multiple commodities can mitigate risk if the 

outputs are either negatively correlated with each other (if one commodity 

fares poorly, the other fares well) or independent of each other (which does 

not perfectly insure against loss, but reduces exposure to catastrophic losses). 

Recent research, however, suggests that diversification is not widely used as a 

risk management tool by farmers (O’Donoghue et al., 2009a). 

Farmers can use contracts to produce commodities for specified fees, transferring risk to the contractor who also (in the case of production contracts) 

provides many of the production inputs. This enables farmers to save time 

and resources, allowing them to expand their production of the contract 

commodity or devote time to other commodities or the pursuit of offfarm income. Farmers may also contract with custom producers to free up 

resources. For example, some dairy farms acquire cropland for feed production, yet rely upon custom producers for all cropland tasks. 

Economies of scale, technological advances, and government policies may 

also help explain why production per farm is increasing and why production 

is becoming more specialized over time. Economies of scale occur when 

average costs fall as farm size increases, strong evidence of which has been 

found in livestock operations. Large-scale crop operations, however, do not 

appear to benefit from such economies. Growth in crop enterprises appears 

to stem from substantial cost advantages from the intensive use of fixed 

resources (in particular, operator and family labor). For example, larger, 
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faster equipment has allowed producers to manage much larger farms over 

time. In 1970, an operator could plant 40 acres of row crops per day, planting 

4 rows at a time at 2 miles per hour (mph), and could harvest 4,000 bushels 

per day running a 4-row harvester for 12 hours per day. By 2005, a producer 

could plant 420 acres per day, planting 16 rows at 6 mph, and harvest 30,000 

bushels per day, running a 12-row harvester. In 2012, it is expected that 

farmers will be able to plant 945 acres per day using a 36-row planter at 6 

mph and harvest 50,000 bushels per day with a 16-row harvester (Bechdol et 

al., 2010).

To realize cost advantages, farmers must make substantial capital investments. Strong economic incentives exist for farms to grow larger and for 

production to continue to shift to them; evidence of these incentives can be 

seen by examining the operating profit margin of different sized farms. 

Average operating profit margins peak for farms with at least $1 million in 

sales, giving these farms a competitive edge (table 3.4). Farms with sales 

below $100,000 earn negative operating profit margins, on average.

Increases in productivity due to new technology may also lead to consolidation. Often, due to cost averaging over more output, larger farms can more 

readily take advantage of more expensive, newer technologies. Additionally, 

entrants tend to implement new technologies immediately while incumbent 

farmers may be slower to adopt due to the costs of replacing older technology and/or the costs of learning new techniques. This can lead to industry 

turnover as farms unable to remain competitive exit. Across a variety of 

commodities, new entrants tend to be the largest farms, both in terms of size 

and scope, suggesting that they are attempting to immediately capture cost 

advantages (Melhim et al., 2009a/b).

Recent evidence suggests that government payments may also play a role in 

the consolidation of production. Researchers have found that government 

payments may provide a means for some farms to grow, leading to more 

concentrated production at both the individual farm level (O’Donoghue and 

Whitaker, 2010) and at the ZIP-Code level (Roberts and Key, 2008). 

Table 3.4

Average operating profit margin by sales class, 2007

Sales class Operating profit margin

Percent

Less than $10,000 -96.1

$10,000 to $49,999 -48.8

$50,000 to $99,999 -12.6

$100,000 to $174,999 1.2

$175,000 to $249,999 8.3

$250,000 to $499,999 16.5

$500,000 to $999,999 22.6

$1,000,000 or more 26.8

Note: Operating profit margin = 100*(net farm income + interest paid – charges for unpaid 

operator and unpaid labor – charge for management)/gross farm income. 

Source: USDA, National Agricultural Statistics Service and Economic Research Service, 2007 

Agricultural Resource Management Survey. 
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What Is the Likely Outcome?

Among the handful of commodities examined in economic studies, the 

largest livestock farms appear to take advantage of scale economies, which 

means they will likely continue to grow in the future. However, in most 

cases, the largest farms are not growing the fastest, suggesting that they are 

approaching an equilibrium size. This does depend on the sector though. The 

largest dairy farms, for example, appear to continue to experience unfettered 

growth while farms producing corn, wheat, apples, and beef all appear to 

be approaching an optimal size (Melhim et al., 2009a,b). However, it is not 

clear when, if ever, an equilibrium size will be attained within these sectors. 

Breakthroughs in technology, veterinary medicine, and management may 

continue to increase the optimal size of the farm.

Continued shifts in production to larger farms have implications for the use 

of marketing and production contracts. Currently, nearly two-thirds of all 

contract production (under marketing or production contracts) takes place 

on farms with at least $1 million in sales (Hoppe et al., 2008). As production continues to shift to farms of this size, the share of sales produced under 

contract will also likely expand. Large processors favor long-term relationships with larger producers to ensure a reliable supply of a given commodity 

at a volume that allows them to operate close to full capacity.

What Is Unlikely To Change?

Some farm structural characteristics, however, are unlikely to change as 

production shifts to larger farms. Unless radical changes take place within 

the farm sector, family farms will continue to dominate farming. Roughly 98 

percent of all farms and 86 percent of million-dollar farms remain in family 

hands—where the operator and the operator’s relatives own more than 50 

percent of the farm business. Family farms’ share of total farms has been 

fairly stable over time in ARMS and earlier data.5

Despite the competitive advantages of large farms, a recent ERS study 

(Hoppe et al., 2010) found that there are still 800,000 small commercial 

farms, defined here as farms receiving between $10,000 and $249,999 in 

gross cash farm income (GCFI). These farms account for about 22 percent 

of U.S. production. Small commercial farms focus on enterprises-like beef, 

grain and soybeans, and broilers (Hoppe et al., 2010)-that do not necessarily 

require a full-time commitment of labor, which allows operators to earn offfarm income. The decline in these farms will likely be gradual; some are 

profitable, and the operators of others are willing to accept losses or place a 

low value on their labor. 

Despite substantial shifts of production to larger farms, individual farms do 

not have much, if any, market power, nor are they soon likely to. In industries 

other than farming, most million-dollar firms would still be considered small 

businesses. For example, the Small Business Administration (SBA) classifies 

most retail trade and service businesses as small if they have annual revenue 

below $7 million (and up to $30 million depending on the industry) (U.S. 

SBA, 2010). By this standard, almost all farms, even the largest ones, would 

qualify as small businesses, since 90 percent of all million-dollar farms had 

sales less than $5 million in 2007.6

5For more information, see the ERS 

briefing room on Farm Household 

Economics and Well-Being at: http://

www.ers.usda.gov/Briefing/WellBeing/

glossary.htm#familyfarm

6For almost all farm specializations, 

SBA classifies farms as small businesses if they have annual revenues no 

more than $750,000. The SBA considers a variety of factors when establishing the cutoff for a particular industry, 

including: average firm size, the size 

distribution of firms, startup costs, entry barriers, impact of different cutoffs 

on SBA programs, and comments from 

the public.
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Chapter 4

Production Practices and Productivity

Productivity drives growth in agriculture and can be achieved through many 

different avenues, including the advent of new technologies, managerial 

techniques, and changes in demand, such as the introduction of new markets. 

These, in turn, can alter farmers’ production practices—or how they manage 

land, chemicals, and water. And how farmers manage their resources to 

produce output leads back to how productive farmers are. 

Genetically Engineered Crops

Genetically engineered (GE) crops first became commercially available 

in 1996. These crop varieties included herbicide-tolerant (HT) and insectresistant (Bt) traits that have increased yields due, in part, to fewer crop losses 

to pests (Sexton and Zilberman, 2011). The Bt traits have lowered the need 

for pesticide applications and reduced the need for pest scouting. HT traits 

allow for a single, post-emergent herbicide application. Both traits end up 

lowering farmers’ labor, management, and machinery use. While other traits 

are being developed—including virus- and fungus-resistant crop strains; 

varieties resistant to cold or drought; and traits that improve product quality, 

including increased protein, oil, or vitamin content—the HT and Bt traits are 

the most important GE crops currently on the market (Fernandez-Cornejo 

and Caswell, 2006). 

Widespread adoption of GE crops soon followed their introduction in 1996 

(fig. 4.1). While other crop varieties have been developed (e.g., HT canola 

and sugar beets), corn, cotton, and soybeans make up the bulk of the acres 

planted to GE crops. By 2007, farmers were using HT soybeans on over 90 

percent of all planted soybean acres.

Targeting specific pests with Bt corn and cotton seed varieties has been 

successful and has led to decreases in insecticide use without insects 

developing resistance to the new varieties (National Academy of Sciences, 

Figure 4.1

Adoption of genetically engineered seeds, 1996-2007

Percent of acres

Source: USDA, National Agricultural Statistics Service and Economic Research Service, 

1996-1998 Agricultural Resource Management Survey; USDA, NASS Crop Production, 1999; 

and USDA, NASS Acreage 2000, 2002, 2004, 2006, and 2008. 

1996 98 2000 02 04 06

0

20

40

60

80

100

HT soybeans

HT cotton

Bt cotton

Bt corn

HT corn

91

49

52

51

70
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2010). Additionally, farmers adopting the HT varieties for corn, cotton, 

and soybeans substituted glyphosate for more toxic herbicides. However, 

the subsequent reliance on glyphosate has led to herbicide-resistant weeds, 

reducing the effectiveness of the HT varieties.

Due to the potential for new pesticide-resistant weeds, the National Academy 

of Sciences recommends that farmers develop and incorporate more diverse 

management practices. For example, operators could use herbicide rotations, 

mixes, and/or application sequences to minimize the spread of HT weeds. 

Soil Management Practices

Farmers use soil management practices, such as crop rotation systems and 

crop residue management (CRM), to control diseases, pests, and weeds; to 

improve soil quality and production efficiency; and to provide long-term 

protection of soil and water resources. Greater use of no-till systems has 

helped meet conservation compliance requirements by reducing erosion 

and surface runoff and enabling carbon sequestration. The adoption of soil 

management practices may also provide higher returns. These practices often 

require, and are facilitated by, technological innovations and higher levels of 

management skills. 

Crop Rotation Systems

The use of crop rotations can help conserve soil, maintain its fertility, protect 

water quality, and control pests, diseases, harmful insects, and weeds. 

Rotating high-residue and/or closely grown crops with row crops can reduce 

soil losses on erosive soils. Closely grown field grain crops—such as wheat, 

barley, oats, and hay/forage crops—provide vegetative cover to reduce soil 

erosion and water runoff while adding organic matter. In addition, these crops 

help to control broadleaf weeds and may help control weed infestations in 

subsequent crops. 

Beans, lentils, alfalfa, and clover are all leguminous crops that can fixate 

nitrogen (from the atmosphere) into the soil, making it available for plant 

growth and reducing the need for commercial nitrogen fertilizers. Legumes 

in a rotation are most effective in humid and sub-humid climates where they 

do not deplete subsoil moisture for subsequent crops. Cover crops planted in 

the fall help reduce erosion from winter and spring storms, hold nutrients that 

might otherwise be lost, enhance the soil’s biological processes, and lengthen 

periods of active plant growth (to increase nutrient cycling, disease suppression, soil aggregation, and carbon sequestration). 

Crop rotations usually result in yields higher than those achieved with continuous cropping under similar conditions. Rotations that add organic matter can 

improve soil tilth and water-holding capacity, and thus increase crop yields. 

By alternating a susceptible crop with a non-host crop, crop rotations can 

help to control a variety of pests by disrupting their life cycles. Additionally, 

soil microbiology and beneficial insects thrive under crop rotations, helping 

control disease and other pests, particularly those that attack plant roots.
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The diversification inherent in rotations can also provide an economic buffer 

against fluctuating prices of crops or production inputs and against the vagaries of weather, disease, and pest infestations. 

Crop Rotation Use for Major Crops

With the exception of cotton, rotational cropping in some form dominates 

major crop production in the United States. For example, approximately 

60 percent of corn acres and 70 percent of soybean acres in the 10 major 

producing States used a corn-soybean rotation system in the most recent 

surveyed year—the 2005 ARMS for corn and the 2006 ARMS for soybeans. 

The practice of continuous cropping, whereby the same crop is planted for 

at least 3 consecutive years, remained constant for soybeans (at roughly 10 

percent of all soybean acreage) and wheat (approximately 30 percent) from 

1991 through 2007. In contrast, continuous corn planting dropped from 

25 percent in 1991 to 17 percent of all corn acreage in 1996 and 2005. For 

cotton, continuous planting dropped from just over 60 percent of all acreage 

in 1991 to under 55 percent by 1998, and held steady there through 2004.1

Wheat, a non-row crop, was planted in a wheat-fallow-wheat sequence to 

conserve soil moisture more than half of the time in 1991. The increased 

adoption of no-till, which also serves to conserve soil moisture, led to only 20 

percent of all wheat acreage being planted in this rotation by 1998 and 2004. 

Crop Residue Management

Crop residue management (CRM) maintains additional crop residue on the soil 

surface through fewer and/or less intensive tillage operations. CRM is generally 

cost effective in protecting soil and water resources; can lead to higher returns by 

reducing fuel, labor, and machinery costs while maintaining or increasing crop 

yields; and can be quickly implemented to meet conservation compliance requirements. CRM also has fewer resource requirements than structural measures (such 

as buffer strips, diversions, grass waterways, and terraces) that usually demand 

higher levels of technical assistance, capital, and contractor skill to install. 

CRM systems include reduced tillage, conservation tillage (no-till, ridge-till, 

and mulch-till), and the use of cover crops and other conservation practices 

that leave sufficient residue to protect the soil surface from the erosive effects 

of wind and water (see box, “Crop Residue Management and Tillage System 

Definitions, ” p. 54). In 2004, farmers practiced CRM on roughly 172 million 

acres (62 percent of planted acres), up from 142 million acres in 1989 (51 

percent) (fig. 4.2). 

Conservation tillage accounted for 41 percent of U.S. planted crop acreage 

in 2004 (the most recent data available), compared with 26 percent in 1989. 

The expansion of conservation tillage has come entirely from the adoption of 

no-till, which increased from 14 million acres in 1989 to nearly 63 million 

acres in 2004. The factors driving the expansion in no-till systems fall into 

three major categories:

• Economic factors that affect farmers’ tillage system choices,

• Government policies and programs,

• Technological innovations in chemicals, equipment, and crop genetics.

1In the 1990s, surveys collected data 

on production practices from each of 

the major crops annually. By the early 

2000s, crops were surveyed intermittently.
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Economic Influences 

Compared with conventional/intensive tillage, farmers can obtain slightly 

higher no-till yields on adequately drained soils or on sloping land, particularly with crop rotations. Benefits from improved moisture retention in the 

root zone usually increase crop yields, especially under dry conditions. In 

some areas, these benefits enable a change in the cropping pattern to reduce 

the frequency of moisture-conserving fallow periods. 

Choice of tillage system also affects chemical, fuel, labor, and machinery costs. 

Decreasing the intensity of tillage and/or reducing the number of trips over the 

field generally lower fuel and labor requirements per acre, extend equipment 

life, and decrease maintenance costs. Conservation tillage may increase net 

returns on the entire farming operation even if returns for a particular crop do 

not increase. For example, a tillage system that requires substantially less labor 

per acre, though it may slightly reduce returns per acre, could free up labor 

to service more acres or generate income elsewhere. These cost savings may 

be offset by increased pest protection and fertilizer costs required to achieve 

optimal yields when using less intense tillage practices. 

Crop Residue Management and Tillage System Definitions 

Unmanaged,

intensive, or 

conventional till

Crop Residue Management (CRM)

Reduced-till Conservation tillage

Mulch-till Ridge-till No-till

Moldboard plow or 

other intensive tillage 

used

No use of moldboard 

plow and intensity 

of tillage reduced

Full-width tillage, but 

further decrease in tillage intensity

Only the tops of ridges 

are tilled

No tillage performed 

since harvest of 

previous crop

<15% residue 

cover remaining

15-30% residue 

cover remaining 30% or greater residue cover remaining on soil surface after planting

Source: Padgitt et al., 2000

Figure 4.2

U.S. tillage practices, 1989-2004

Percent of planted acres

Note: Blue segments show increases.

Source: The Conservation Tillage Information Center, National Crop Residue Management 

Survey, 1989-2004.

38

1

17

23

22

1989 92 96 2000 04

No till 5

Mulch 20

Ridge 1

Reduced 25

Conventional 49
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Government Policies and Programs 

Under the 1985 Food Security Act and subsequent farm legislation, highly 

erodible land (HEL) used for crops requires implementation of a conservation 

plan in order to be eligible for USDA farm program benefits. Many conservation plans for HEL involve some combination of conservation tillage/crop 

residue management, cover crops and/or rotating row crops with less erosive 

crops such as small grains and hay/pasture, and structural measures to 

control erosion and reduce water runoff. 

Technological Innovations

The development of larger and faster equipment, information and GPS technologies, and precision agriculture tools such as yield monitors and variablerate equipment allows farmers to better match seed, fertilizer, and pesticide 

applications to areas within a field where they are most needed. The development of genetically engineered seeds and adoption of crop varieties with 

herbicide tolerance (HT) and/or resistance to specific pests (Bt) has facilitated a shift to less intensive tillage systems, particularly no-till.

The major limitations to adoption of no-till systems for some farmers include 

additional management skill requirements; expectations of lower crop yields 

and/or economic returns in some areas or situations (for example, no-till can 

prevent soils in some areas from warming up and drying out to the extent 

necessary for proper seed germination by planting time, which can require 

replanting or switching to a substitute crop); negative attitudes or perceptions; 

and institutional constraints (for example, obtaining permission from landlords, or even bankers, may prove difficult).

Pesticide Use and Management

Conventional crop farmers rely on pesticides (essentially, toxins spread on 

the fields) to combat various types of fungi, weeds, diseases, and pests that, 

if left untreated, could reduce crop yields. These toxins can be hazardous to 

the environment, to the producers in the fields, and to consumers exposed to 

pesticide residues. Indeed, markets for organic foods have risen in part due to 

consumer demand for pesticide-free foods (Greene and Calvin, 1997). 

Pesticide Use From 1982 to 2007

We focus on five crops—corn, cotton, fall potatoes, soybeans, and wheat—

that account for nearly two-thirds of the pesticides used. Over the 25-year 

period, pesticide use has changed as shown in the following graphs. (For 

information about the data sources used, see box “Data on Pesticides,” p. 56).

From 1982 to 2007, pesticide use on corn, cotton, fall potatoes, soybeans, 

and wheat (see box, “Data on Pesticides,” p. 56) decreased slightly, primarily 

due to drops in herbicide use (the most heavily used pesticide), while fungicides and other pesticide use (such as desiccants and growth regulators) have 

increased since 1982. The light gray line in figure 4.3 denotes the growth 

trend of all pesticide use, measured as millions of pounds of active ingredient, indexed to 1982 = 100 for each pesticide type.
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In 1982, 1991, 1994, and 1997 (years we have data for total pesticide use), roughly 

62 percent of all pesticides used by U.S. agricultural producers were spread on corn, 

cotton, fall potatoes, soybeans, and wheat (Aspelin, 2003; Lin et al., 1995; Osteen 

and Szmedra, 1989; Padgitt et al., 2000; and Agricultural Chemical Usage: Field 

Crops Summaries, USDA, NASS, various years). To examine recent trends in pest 

management practices, we use ARMS data collected from producers of corn (1996-

2001, and 2005), cotton (1996-2000, 2003, and 2007), soybeans (1996-2000, 2002, 

and 2006) and winter wheat (1996-1998, 2000, and 2004).

Estimates by crop for earlier years are from other sources. Estimates by crop for 1982 

are from Lin et al. (1995) and Osteen and Szmedra (1989), for 1990 from Padgitt et 

al. (2000), and for 1991-2007 from Agricultural Chemical Usage (USDA, NASS, 

various years) using estimates of total planted acres (USDA, NASS, Agricultural 

Statistics, 2008). For wheat, separate estimates were made for winter wheat, other 

spring wheat, and durum wheat, except for 1995-97, when other spring wheat and 

durum wheat application rates were not separately available. 

Total use estimates are compiled from these sources and from estimates of total 

pesticides used in U.S. agriculture for 1982, 1985, 1988, 1991, 1994, and 1997 from 

Aspelin (2003). Data by crop are not available for 1983-1989. Data for corn are not 

available for 2004 and 2006-07 and similarly for cotton (2002, 2004, 2006), fall 

potatoes (1998, 2000, 2002, 2004, 2006, 2007), soybeans (2003, 2005, 2007), and 

wheat (1999, 2001, 2003, 2005, 2007). Estimates were imputed for some years using 

trends in application rates and percentages of planted acres that were treated (area 

treated) and data on planted acres. When an obvious pattern in the application rate 

or area treated was apparent, imputed values were estimated using average annual 

percentage changes. When an obvious pattern was not available, the previous year’s 

value was used, which was often the case for area treated. Crop shares for 1983-

1989 are the averages for 1982 and 1990-94.

Data on Pesticides

Figure 4.3

Pesticide use, 1982-2007

Active Ingredients Index, 1982 = 100

Source: See “Data on Pesticides” box, page 56.

1982 84 86 88 90 92 94 96 98 2000 02 04 06

0

100

200

300

400

500

600

Insecticides

Herbicides

All pesticides

Fungicides

Other pesticides
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Despite drops in herbicide use, herbicides remain the dominant pesticide. 

Roughly 70 to 80 percent of all active ingredients placed on the five crops 

examined come from herbicides (fig. 4.4a). Although the share of active 

ingredients placed on corn crops has dropped, it still receives the highest 

share, while fall potatoes’ share has risen significantly. Meanwhile, cotton’s 

share has fluctuated due to the successful efforts aimed at eradicating the boll 

weevil (fig. 4.4b).

The introduction of genetically engineered seed varieties that allowed 

plants to tolerate the herbicide glyphosate had different effects on herbicide use, depending on the crop examined. On corn fields, the new seed 

varieties allowed farmers to replace the more heavily applied butylate and 

EPTC herbicides with glyphosate, inducing lower application rates of active 

ingredients. Potato farmers replaced the more heavily applied EPTC with 

metribuzin, pendimethalin, and rimsulfuron, which also caused a reduction 

in both application rates and total placement of herbicide active ingredients 

on potato fields.

The use of glyphosate in soybean and cotton fields, however, had the opposite effect. For these crops, glyphosate replaced herbicides with lower application rates, causing an increase in both application rates and total pounds 

of active ingredients. 

Pesticide Management

Genetically engineered herbicide-tolerant seed varieties allow farmers to 

scout for weeds and use herbicides only when needed, reducing overall chemical use. Adoption of these seed varieties in corn, cotton, and soybeans over 

the past 25 years increased the use of post-emergence herbicides and reduced 

reliance on pre-emergence herbicides for these crops. Farmers of winter 

wheat, however, came to rely more heavily on pre-emergence herbicides over 

this period, leading to a decline in scouting for that crop. 

Figure 4.4

(a) Share of total active ingredients used, 

by pesticide type

Percent

Source: See “Data on Pesticides” box, page 56.

69

25

2

4

40

23

12

20

1982 90 95 2000 07 1982 90 95 2000 07

Herbicides 81

Insecticides 13

Other 5

Fungicides 1

(b) Share of total active ingredients used, 

by crop

Percent

6

Corn 53

Soybean 28

Cotton 10

Fall potatoes 5

Wheat 4
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Overall, farmers have come to rely less on insecticides. The adoption of 

genetically engineered seed varieties of corn that express toxins derived from 

a common soil bacterium, Bacillus thuringiensis (Bt)—which kills insect 

pests such as the European corn borer, the corn earworm, and the corn rootworm—has allowed corn farmers to use fewer insecticides. 

Beginning in the 1990s, cotton farmers coordinated efforts to eradicate the boll-weevil, creating a spike in insecticide use. Because these 

successful efforts are winding down and due to the increased adoption of 

Bt cotton seed varieties, application rates dropped in the 2000s. Further 

adoption of the seed varieties, including varieties of corn and cotton that 

express more than one Bt toxin, will likely lead to continued reductions in 

insecticide use.

Potato farmers have come to rely more heavily on insecticides with low 

application rates (especially pyrethoids and imidacloprid), reducing the level 

of use. Insecticide use on soybean fields was minimal during the 1990s, but 

picked up in the 2000s, likely due to the introduction of the soybean aphid in 

northern production areas. 

In general, fungicide use increased over 1982-2007; rates of use, however, 

depended heavily on the crop. Potato farmers increased their use of fungicides with high application rates, such as chlorothalonil and mancozeb. 

While soybean farmers had used fungicides sparingly, the introduction 

of Asian soybean rust into the United States in 2004 changed that. The 

increased use of fungicides on soybean fields is expected to continue as 

the pathogen that causes the disease becomes established in the South 

where it can overwinter (Livingston et al., 2004). In contrast, farmers 

have reduced their use of fungicides on wheat and cotton crops over 

1982-2007.

Nutrient Use and Management

Farmers rely heavily on fertilizer nutrients—especially nitrogen, phosphorus, 

and potassium—to boost crop yields. However, if the chemicals are not used 

by the plants, they can pollute air, surface, and groundwater resources. 

Management of these nutrients helps determine both crop yields and their 

environmental impact. Applying more nutrients than the crops require 

reduces their effectiveness and increases their volatilization into the atmosphere or leaching into groundwater. Application methods and timing are also 

important. For example, spraying fertilizers onto the fields (versus incorporating them into the soil) increases the likelihood of the chemicals volatizing 

into the air or being swept away by heavy rains. 

Nutrient Use Over 1982-2007

Roughly two-thirds of all fertilizer nutrients are spread on corn, cotton, 

soybeans, and wheat fields. From 1982 to 2007, farmers increased the total 

tons of nutrients applied to their fields by 9 percent, driven by increases 

in nitrogen (N) applications, while phosphorus (P) and potassium (K) use 

dropped (fig. 4.5). (Nutrient application is measured as thousands of tons of 
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applied nutrients, indexed to 1982 = 100 for each nutrient type.) Overall, 

fertilizer nutrient applications rose at an average annual rate of 0.3 percent.

Corn drives many fertilizer trends since farmers plant the most acres to corn 

and corn fields receive the highest application rates (MacDonald et al., 2009). 

Nitrogen makes up more than half of all the nutrients applied on U.S. crops, 

and its share is increasing due to higher corn plantings (fig. 4.6).

It should be noted, however, that “all other crops” (not shown here) make 

up a substantial portion of nutrient use. Farmers applied roughly two-thirds 

of all nutrients on corn, wheat, soybean, and cotton fields (fig. 4.7), but the 

portion going to all other crops increased from 29 percent in 1982 to 35 

percent by 2007. 

Figure 4.5

Nutrient use over 1982-2007 

Applied nutrients index (1982 = 100)

Note: (N) nitrogen, (P) phosphorus, and (K) potassium.

Source: USDA, Economic Research Service, Fertilizer Use and Price 

(http://www.ers.usda.gov/Data/FertilizerUse/).

1982 84 86 88 90 92 94 96 98 2000 02 04 06

80

90

100

110

120

130

140

N

P

K

All nutrients

Figure 4.6

Share of total tons of nutrients applied to fields, by nutrient type 

Percent

Note: (N) nitrogen, (P) phosphorus, and (K) potassium.

Source: USDA, Economic Research Service, Fertilizer Use and Price 

(http://www.ers.usda.gov/Data/FertilizerUse/).

1982 84 86 88 90 92 94 96 98 2000 02 04 06

N 51

P 22

K 26

58

22

20
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Nutrient Management

Nutrient management includes manure management, method of applying 

the nutrients, the use of various tests to determine nutrient requirements, 

and nutrient application timing. Shares of planted corn, cotton, soybean, and 

winter wheat acres receiving manure (organic fertilizer) have not changed 

markedly since 1996, with corn averaging 14 percent, followed by soybeans 

(4 percent), cotton (3 percent), and winter wheat (2 percent). 

By incorporating fertilizers directly into the soil, farmers help to minimize 

the amount of nutrients lost to volatilization and runoff. However, this practice can increase the leaching of nutrients into groundwater. Farmers incorporate the majority of chemical fertilizer nutrients applied to corn, cotton, 

soybeans, and wheat fields. Corn and soybean farmers have increased the 

share of planted acres that receive chemical N incorporated directly into the 

soil, while the share of acres planted to cotton and winter wheat that receive 

incorporated chemical N has fallen moderately (fig. 4.8).

Other management practices include using N-inhibitors, which delay the 

release of nitrogen, and plant tissue and soil tests to determine the optimum 

level of additional nutrients (fig. 4.9). 

The majority of acres planted to corn, wheat, soybeans, and cotton do not 

receive N-inhibitors and do not get tested for nutrient content. The scope of 

these practices has not changed since 1996, and is unlikely to change.

Farm operators can also time the fertilizer application to help reduce nutrient 

loss through leaching. ARMS data indicate that farmers apply chemical 

fertilizer nutrients shortly before and/or after planting, when crop demand is 

greatest, to most planted acres, though such attention to timing has remained 

static since 1996.

Figure 4.7

Share of total tons of nutrients applied to fields, by crop 

Percent

Source: USDA, Economic Research Service, Fertilizer Use and Price 

(http://www.ers.usda.gov/Data/FertilizerUse/).

46

5

11

1982 84 86 88 90 92 94 96 98 2000 02 04 06

Corn 50

Cotton 2

Soybeans 6

Wheat 13

3
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Organic Production

In 1990, Congress passed the Organic Foods Production Act (OFPA), 

requiring the U.S. Department of Agriculture (USDA) to develop national 

standards to assure consumers that organic products meet consistent, uniform 

standards. In 2000, the USDA issued a final rule that implemented the 

National Organic Program (NOP) to govern the USDA organic program. 

The rule, which took effect in 2002, established national organic standards 

governing production and handling processes for organic agriculture. 

USDA organic regulations cover the scope of crop and livestock production, 

wild crop, and handling. To increase soil fertility and biodiversity, organic 

crops must be cultivated using rotation practices, cover crops, and animal 

and plant material. Weeds, diseases, and pests are generally controlled 

through physical, mechanical, and biological means, and organic crops are 

raised without toxic, persistent pesticides, petroleum-based fertilizers, or 

sewage sludge; any synthetic substances that are applied to the land have to 

Figure 4.8

Incorporating chemical N into fields, 1996 ( ) and most recent year ( )

Percent of planted acres

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 1996,

2004, 2005, 2006, and 2007 Agricultural Resource Management Survey, Phase II.

Cotton Winter wheat Corn Soybeans

0

20

40

60

80

2007 2004 2005 2006

Figure 4.9

Percent of farms that use soil N-inhibitors, plant tissue tests, 

and soil tests

2005 2007 2006 2004

Corn Cotton Soybeans Winter wheat

0

10

20

30

40

50 Soil

Tissue

N-Inhibitor

Source: USDA, Economic Research Service and National Agricultural Statistics Service, 1996,

2004, 2005, 2006, and 2007 Agricultural Resource Management Survey, Phase II.
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be approved by the regulations. Production standards for livestock require 

that they be fed 100 percent organic feed, have year-round outdoor access, 

and not administered antibiotics or growth hormones. Processed products 

should not contain artificial preservatives, colors, or flavors, and any nonorganic ingredients or processing aids must be approved by the regulations. 

Comprehensively, use of genetic engineering, ionizing radiation, and sewage 

sludge are forbidden in organic production and handling. 

Certification and Regulation

Under the authority of OFPA and the NOP regulations, operations must be 

certified by a USDA-accredited certifying agent to represent their products as 

USDA organic. Certification requires developing an Organic System Plan, 

which serves as the foundation of the certification process as it documents how 

a grower or handler plans to meet NOP standards. 

The Organic System Plan, specific to the operation type, must enumerate the 

following elements: farming or handling practices inherent to the operation, 

such as crop rotations, fertilization, soil conservation, water quality testing, and 

weed/pest management practices; substances that are used as production or 

handling inputs; monitoring practices and their frequency, such as soil testing 

or product quality testing; recordkeeping systems; management practices and 

physical barriers to prevent commingling with nonorganic products; and any 

other additional information deemed necessary to evaluate compliance with the 

regulations. 

Full organic status requires a 3-year conversion period, during which no 

prohibited substances may be applied to the land prior to the harvest of any 

product that qualifies as organic. Effectively, the producer must abide by 

organic standards for 3 years without being able to sell the output as organic. 

This introduces steep set-up costs since organic food costs more to produce. 

According to a recent ERS analysis of national dairy and soybean survey data, 

organic operations absorbed significantly higher total economic costs than 

their conventional counterparts (Greene et al., 2009). Yet organic products also 

command significant price premiums at the farm level. Organic milk producers 

enjoyed an average price premium of $6.69 per hundredweight (44 percent 

higher than the average price received for non-organic milk) in 2005, which 

covered most of the additional costs of organic production that year. In 2006, 

the premium for organic soybeans more than covered the additional costs, 

making them more profitable than conventional soybeans that year.

Growth Over Time

While organically produced agricultural goods make up a small portion of 

the market, demand has increased for these products, especially under the 

NOP. In 1980, consumers purchased $470 million (in 2008 dollars) worth of 

organic food products; they bought nearly $20 billion by 2007 (table 4.1). 

Market Share

Although only a small segment of the overall agricultural marketplace, 

organic agriculture has established a foothold in many U.S. farm commodi-
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ties, with rapid increases in the levels of farmland, livestock numbers, and 

farm operations (table 4.2)2

Irrigation

While the United States, as a whole, has abundant freshwater supplies, these 

supplies are not distributed evenly across the Nation. Agriculture is one of the 

largest users of fresh water and is by far the largest consumptive user of water 

(generally, that part of water withdrawals that does not return to the water environment) (Gollehon et al., 2006). In particular, the arid West tends to consume 

more than half of its renewable water supplies under normal conditions; in 

drought years, water use often exceeds renewable flow through the use of 

depletable storage systems, such as aquifers and reservoirs. Together, States in 

the Pacific, Mountain, and Plains regions accounted for roughly 85 percent of 

the total agricultural withdrawals of freshwater in 2000 (Gollehon et al., 2006). 

Over time, competition for increasingly scarce water resources has intensified, 

mainly due to population growth, but also due to energy sector growth, ecological and environmental demands, and Native American water-right claims. 

Climate change projections and an increased interest in biofuels are heightening the tensions surrounding water allocation rights (Schaible et al., 2010). 

2Data are from USDA-accredited 

organic certifiers, and differ, in some 

cases substantially, from the data collected by NASS in the 2008 Organic 

Production Survey for several reasons. 

First, the certifier data include only 

those farms that certified as organic, 

and covers all such operations. In 

contrast, the NASS survey collected 

data from certified organic producers 

as well as from farms exempt from the 

certification process (those with sales 

below $5,000). Additionally, the 2008 

NASS organic farm numbers were 

coverage adjusted based on 2007 agricultural census responses that required 

farmers to self-report whether they had 

any organic production on the farm; 

in other words, the NASS survey may 

not have captured all the organic farms 

despite their effort to adjust estimates 

for nonresponse. Second, the administrative data underlying the certifier 

numbers may be based on a broader 

definition of livestock (e.g. dairy cows) 

than that used for the NASS survey. 

Third, the NASS survey reports livestock end-of-year inventories to prevent 

double counting across multiple operations (which also may coincide with 

falling herd numbers); the certifier data 

cover producer expectations on the 

dates the producers filed for certification throughout 2008. As a result, 

the certifier data likely represent an 

upper bound on the number of certified 

farms, cropland, and livestock, while 

the NASS survey results (not shown 

here) likely represent a lower bound.

Table 4.1

Organic retail sales, 1980-2007

Year Sales ($ billion (2008))

(Percent from fruit 

and veg. in blue)

1980 0.47

1990 1.65

1992 2.36

1996 4.80

2002 10.3 42

2007 19.6 37

Source: Natural Food Merchandiser, 1996; and Nutrition Business Journal, 2009. 

Fruit and vegetable sales 

make up the largest share 

of organic production and 

sales.

The Organic Food Program Act of 1990 is implemented, setting a national 

organic standard and requiring either USDA-accredited State or private 

organization certification 

of organic farmers, processors, and handlers.

Table 4.2

U.S. certified organic levels of farmland, livestock numbers, and farm 

operations (percent of U.S. totals in blue), 1992-2008

1992 2000 2008

Acres

Cropland 403,400 1,218,905 2,655,382 0.35

Pasture/range 532,050 557,167 2,160,577 0.46

Number

Broilers 17,382 1,924,807 9,015,984 0.10

Milk cows 2,265 38,196 249,766 2.7

Beef cows 6,796 13,829 63,680 0.19

Hogs 1,365 1,724 10,111 0.02

Total operations1 3,587 6,592 12,941 0.006 1Does not include subcontracted or exempt organic farm operations.

Source: The Conservation Tillage Information Center, National Crop Residue Management 

Survey, 1989-2004. 

In 2008, total certified organic cropland 

rose to over 2.6 million acres. While 

growth has been rapid, total certified organic cropland made up only 0.35 percent of total cropland in the United States 

in 2008.
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In response, farmers have implemented water conserving irrigation practices. From 1984 to 2003 (the timeframe in which we have data available 

to us), total agricultural water use remained relatively stable, dropping by 

roughly 600,000 acre-feet (or less than 1 percent), while Western irrigation grew to cover an additional 2 million acres between 1984 and 2008 

(fig. 4.10). 

Farmers use two main types of irrigation: gravity and pressure irrigation. In 

gravity irrigation, water uses the path of least resistance from its source to 

the crops. Pressure irrigation systems rely on pipes to ensure more uniform 

coverage and reduce losses of water due to evaporation and runoff.

Seventy-one percent of all agricultural water use in the West was applied to 

crops using gravity systems in 1984. By 2003, operators used gravity systems 

to apply only 51 percent of all water, with pressure systems applying the other 

49 percent. By 2003, the majority of irrigated acres in the West were being 

irrigated with pressure irrigation systems, many with conserving systems 

such as drip, low-pressure sprinkler, or Low-Energy Precision Application 

(LEPA) systems. 

Tensions continue to mount concerning the allocation of water resources 

among competing demands, and the sustainability of Western irrigated agriculture will likely depend on the continued adoption of water conservation 

practices. These will probably include a continued shift from gravity to pressure systems, and may include more intensive use of infield water-management practices such as soil- or plant-moisture sensing devices, commercial 

irrigation scheduling services, or computer-based crop-growth simulation 

models (Schaible et al., 2010).

Productivity in U.S. Agriculture

1Total water use generally exceeds the sum of the water use of gravity and pressure irrigation. While gravity and pressure make up the bulk 

of irrigation systems, subirrigation systems are excluded from the analysis. 

2The sum of gravity and pressure irrigation acres can exceed the total number of acres irrigated. Irrigators may begin with pre-plant irrigations 

using a gravity system, but then switch to a sprinkler system after crop planting.

Source: USDA, National Agricultural Statistics Service, Farm and Ranch Irrigation Surveys (1984, 1988, 1994, 1998, 2003, and 2008).

74M1

28M

15M

41M2

Gravity irrigation (Acre-feet) 53m

1984 88 94 98 2003 08

Total water use (Acre-feet) 74m

Pressure irrigation (Acre-feet) 21m

Irrigated acres (Gravity) 24m

Irrigated acres (Pressure) 15m

Total irrigated (Acres) 39m

Figure 4.10

Trends in water use, 17 Western States, 1984-2008

38M

36M
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Changes in farmers’ production practices can lead to increases in productivity. At the same time, the spread of new technology can make inputs more 

effective or allow them to be combined in better ways. U.S. agricultural 

output has increased significantly, while inputs such as pesticides and water 

have decreased due to the introduction of GE seeds and the development of 

pressure irrigation systems. 

GE seed adoption has increased yields while helping to reduce labor, management, and machinery use due to reduced pesticide applications and pest 

scouting (for Bt seeds) and lower herbicide use (for HT seeds). Moreover, 

GE seeds allow for the increased adoption of no-till practices, which also 

help decrease farmers’ reliance on fertilizers and lower the amount of labor 

and machinery used otherwise. Scale economies for some commodities 

(primarily livestock) and organizational and capital innovations in others 

provide additional sources of productivity gains. 

ERS has developed a statistical series—total factor productivity (TFP)—to 

isolate the effect of changes in technology and related factors from changes 

in inputs on the growth of agricultural output. Growth in TFP is the primary 

source of new wealth creation, so trends in agricultural TFP are an important 

indicator of the longrun performance of the sector. 

Agriculture relies more heavily on improvements in technology as a source of 

growth than almost any other sector of the U.S. economy (table 4.3). Overall 

growth in industrial production from 1960 to 2004 was almost double that 

of agriculture.3 While growth in TFP accounted for 13 percent of the growth 

in all industrial output over this period, it accounted for 117 percent of the 

growth in agricultural output. Improvements in agricultural TFP also contributed significantly to the overall productivity growth of the U.S. economy. 

Even though agriculture accounted for only 1.8 percent of GDP, it accounted 

for 12.1 percent of all TFP growth in private industry over 1960-2004 

(Jorgenson et al., 2006).

From 1982 to 2007, agricultural TFP grew at a rate similar to total output—an 

aggregation of crop and livestock commodities and related services (fig. 4.11). 

Total inputs—land, labor, capital, and intermediate inputs like fertilizer, feed, 

and seed—trended slightly downward due largely to reductions in the amount 

of labor employed in agriculture. Overall, the amount of crop and livestock 

3We use the 1960-2004 period—

rather than 1982-2007—because it is 

the only period with data for all U.S. 

industries that are comparable with the 

data for agriculture.

Table 4.3

Sources of growth in agriculture and all industries, 1960-2004

Agriculture All U.S. 

Industries

Percent

Average annual growth in output 1.7 3.2

Share of output growth due to growth in:

 Non-labor inputs 11.8 54.1

 Labor hours -34.2 23.7

 Labor quality 5.6 8.8

 TFP 116.8 13.4

 Total 100.0 100.0

Source: Fuglie et al., 2007
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output produced per unit of (aggregate) input increased by 35 percent from 

1982 to 2007, abetted by productivity growth. 

An Illustration: Productivity Growth 

in Corn Production, 1982-2007 

The aggregate changes in agricultural production and productivity are the 

sum total effect of myriad changes taking place every year in the way farmers 

produce individual crops and livestock commodities. These productivity 

changes occur when new technologies are adopted, for example, or when 

scale economies are achieved in production. 

To illustrate how such changes occur, we focus on corn and some technological changes that have facilitated its production since 1982. Corn 

accounts for the most value of production in the U.S. farm economy and 

has arguably experienced more growth in productivity than any other major 

commodity over the past 70 years (see box, “Earlier Productivity Growth in 

Corn Production,” p. 68).

Technology adoption can lead to changes in production practices. Widespread 

adoption of genetically engineered (GE) corn varieties helps explain the 

falling share of corn acres treated with insecticides over 1996-2005 (fig. 

4.12). Moreover, the adoption of herbicide-resistant strains of corn also 

contributed to farmers’ move toward reduced- or no-till, lowering costs of 

machinery, fuel, and labor, while reducing soil erosion.

Other than the increase in GE corn varieties, there were no major changes in 

production practices for corn after 1982. According to the 2005 ARMS, about 

60 percent of U.S. corn fields had been planted to soybeans the previous year, 

26 percent previously to corn (“continuous corn”), and the rest to other crops 

or left fallow. These percentages had not changed much since the first ARMS 

was conducted in 1996 (USDA, ERS, 2009c). Nitrogen fertilizer application 

and irrigation practices also remained relatively stable. Some changes in busiFigure 4.11

Indices of aggregate U.S. agricultural output, input, and total factor 

productivity, 1982-2007 

Index value (1982 = 100)

Source: USDA, Economic Research Service, indices of farm output, input, and total factor 

productivity (http://www.ers.usda.gov/Data/AgProductivity/#datafiles).

1982 84 86 88 90 92 94 96 98 2000 02 04 06

0

20

40

60

80

100

120

140

160

Total output

Total inputs

Total factor productivity
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ness organization—like the shift in production to partnerships, corporations, 

and LLCs—could have contributed to productivity increases. 

Nevertheless, technology served to increase corn productivity by altering 

production practices, resulting in the use of fewer resources (land, labor, 

chemicals, energy, and machinery) to produce a bushel of corn. As a result, 

production costs dropped. In the long run, with lots of competition (many 

farmers grow corn) and reduced costs, the prices received for corn tend 

to decrease as well. Technological advances can therefore not only herald 

changes in production practices, but also in reduced prices, both in terms of 

what the farmer receives and, eventually, in what consumers pay. 

Recent prices for agricultural commodities have been high, however, 

reflecting strong demand for commodities for food and for feedstock in 

the production of biofuels (Parker, 2011). The discussion in the previous 

paragraph assumes “ceteris paribus,” or other factors—including demand— 

are held constant. Of course, the other factors in reality may not be 

constant. Reaching the equilibrium described may not occur immediately. 

Nevertheless, prices may still be lower using new technologies than they 

would be in their absence, because they allow farmers to increase the supply 

of agricultural commodities.

Figure 4.12

Changes in GM seed, chemical use, cropping practices, 

and mid-aggregate enterprise size for corn, 1982-2007 

Percent of area, Enterprise size

Sources: Fuglie et al. (2007); Census of Agriculture, various years; and USDA, Economic 

Research Service (2009b, 2009c, and 2010).

Bu./acre or lb./acre

1982 84 86 88 90 92 94 96 98 2000 02 04 06

0

20

40

60

80

100

0

20

40

60

80

100

120

140

160

Corn yield trend (bu./acre)

N fertilizer (lb./acre)

Mid-aggregate corn enterprise

size (10s of acres)

No till (% acre) Irrigation (% acre)

GM seed

(% acre) Insecticide

(% acre)
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Compared with other major crops, corn probably witnessed the most gain in 

productivity—measured in output per acre—over the past seven decades. Between 1866 

and 1940, average corn yield in the United States remained static at about 25 bushels per 

acre, but since 1940 yield rose steadily, exceeding 150 bushels/acre by 2007.

Farm Mechanization

The first major change to affect corn production in the United States was the 

conversion from animal and human power to mechanized power for farm operations. 

The historical evidence on agricultural mechanization in the United States, such as 

the spread of tractors, refers to all farming operations and not just corn, but the 

pattern is generally similar for major field crops. 

Early gasoline tractors of the 1900s were very large, patterned after the giant 

steam plows that had preceded them. Improvements between 1910 and 1940 greatly 

increased their versatility and power and reduced their size. Important innovations 

prior to World War II included the frameless tractor, pneumatic tires, power take-off, 

and hydraulic lifting devices for implements (Sundquist et al., 1982). Following 

World War II, there was a shift from gasoline to diesel-powered tractors and an 

increase in horsepower. Another important trend was adoption of self-propelled 

harvesting and threshing equipment and on-farm corn drying technology which 

reduced post-harvest crop losses. 

Mechanization of farm operations did not have a large effect on corn yield but 

contributed substantially to raising Total Factor Productivity (TFP). Not only did 

mechanization reduce labor requirements, but it also freed up large amounts of 

cropland that had previously been used for forage and feed grain production for 

draft animals. Farms could now devote more land to commercial crop and livestock 

production. Breaking the link between crop production and feed requirements for 

draft animals facilitated the regional specialization of commodity production. 

Regions where corn could not be grown efficiently could now convert that land to 

other uses; and regions where corn was best suited could now grow corn on lands 

previously needed for pasture and forage crops. 

Yield-Enhancing Innovations

After 1940, the revolution in corn yield materialized, attributable to the development 

and adoption of a series of innovations involving varietal improvement, fertilization, 

pest and disease management, the advancement of irrigation, and changes in soil 

tillage practices.

In the 1930s, hybrid seed began to replace open-pollinated seed and by 1956 had 

been adopted on over 90 percent of corn acreage in the United States (USDA, NASS, 

Agricultural Statistics, various issues). After World War II, farm applications of 

inorganic fertilizers and chemical pesticides rose significantly. The increased use 

of fertilizer and pesticides was necessary to realize the higher yield potential in the 

new hybrid varieties adopted during this period. Nitrogen fertilizer use rose very 

rapidly from under 20 lb/acre in 1950 to roughly 130 lb/acre by the late 1970s. 

Herbicide applications reached 95 percent of corn acreage by 1982, while the share 

of corn under irrigation slowly expanded to reach 13 percent of total acreage by the 

late 1970s.

Earlier Productivity Growth in Corn Production
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Conclusions

This report has identified four trends that have implications for the organization of U.S. farming. They are declining land and labor devoted to farming, 

changing business organization, a shift in production to larger farms, and 

growth in productivity.

Declining Labor and Land

Two major inputs into farming, labor and land, have declined over the past 

three decades. The amount of labor dedicated to farming dropped by roughly 

30 percent for hired labor and 40 percent for self-employed labor between 

1982 and 2007. Meanwhile, the principal operators remaining in farming 

have grown older, with the share of principal farm operators at least 65 years 

old increasing from 18 to 30 percent, while the share of those 35 or younger 

decreased from 16 to 5 percent of all farmers.

While the amount of labor dedicated to farming declined rather steeply, land 

in agriculture declined more modestly. Land in agricultural use fell from 

1.23 billion acres in 1982 to 1.16 billion acres in 2007, or by about 6 percent. 

Of this 70-million-acre drop, 60 million came from reductions in cropland, 

which declined from 469 million acres in 1982 to 408 million acres in 2007. 

Substantial shifts between pasture and cropland also took place. Roughly 

50 million acres transitioned from cropland to pasture or rangeland, while 

nearly 45 million acres transitioned the other way, from pasture or rangeland 

to cropland between 1982 and 2007. Additionally, urban areas continued to 

expand their influence on agricultural land use. Close to 40 million acres of 

cropland, pasture and rangeland, and forestland were converted to urban uses 

between 1982 and 2007—conversions that rarely transition back to agricultural purposes. 

Organization and Business Arrangements

Commercially oriented farm businesses have come to rely more heavily on 

contracting. The share of production under marketing or production contracts 

increased from 28 percent in 1991 to over 37 percent by 2007. Moreover, 

production has shifted to farm corporations and partnerships. Together, this 

means that risks are now spread across a wider set of stakeholders. 

In managing risk, farmers have increasingly come to rely upon Federal 

crop insurance, which grew from 100 million acres covered ($900 million 

in premiums) in 1989 to over 200 million acres by 2007 (over $6 billion). 

Government support of farm income has continued to shift from set-aside, 

price support, and supply control programs to commodity-related and conservation programs not directly tied to farmers’ current production decisions. 

With the introduction of the Conservation Reserve Program in 1986, for 

example, conservation funding increased from less than $430 million in 1982 

(in 2007 dollars) to over $3 billion by 2007. 

While smaller farms receive the bulk of conservation program payments 

(farms with annual sales below $100,000 received almost 60 percent of these 
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payments in 2007), funding has increased for working-land programs (as 

opposed to land-retirement programs) designed to make farmers’ production practices more conservation-oriented. Because production is skewed 

toward the larger farms, this renewed focus will likely result in larger farms 

receiving increasing shares of conservation payments, as they do commodity 

program payments. Farms with sales above $250,000 received roughly 70 

percent of commodity program payments in 2007.

Continuing Shifts to Large-Scale Farms

Not only do large farms receive the most support, but they also have a 

competitive advantage in the marketplace. Farms with sales below $100,000 

in 2007 had, on average, negative operating profit margins, while those above 

$100,000 in sales enjoyed positive average margins that increased with farm 

size. Large farms, in addition, can adopt new or improved technologies more 

easily. This suggests a continued shift in production to very large farms. 

Farms with sales above $1 million already increased their share from 27 to 

59 percent of total agricultural production between 1982 and 2007. This also 

suggests a continued increase in the share of production under production and 

or marketing contracts since large food processors tend to favor contracting 

with large farms. Between 1991 and 2007, the use of contracts increased by 9 

percentage points, and we can expect further increases going forward.

The number of smaller commercial farms (those with sales of $10,000 to 

$249,999), in contrast, will likely continue to decline. Very small farms, 

however, exist independent of the farm economy—the operators of which rely 

heavily on off-farm income and are less likely to decline in number. Despite 

probable continued shifts in production to larger farms, farming will likely 

remain a family-oriented business as the family-farm share of the farm count 

remained between 97 and 99 percent of all farms from 1988 through 2007. 

Productivity

Total factor productivity has continued to increase, growing over 45 percent 

from 1982 to 2007. This has allowed output to grow substantially with very 

little change to total input use. Farming depends more on technological 

improvements for output growth than most other industries and—driven 

by an increased use of technology—production practices have changed, 

including the increased adoption of no-till and lower uses of pesticides and 

insecticides. The increased productivity has kept prices stable for many of the 

foods produced today.
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