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PETE FLAG IFAS PALMM UF



Florida food and resource economics
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Title: Florida food and resource economics
Physical Description: v. : ; 28 cm.
Language: English
Creator: Florida Cooperative Extension Service
Publisher: Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences.
Place of Publication: Gainesville Fla
Creation Date: July 1981
Frequency: bimonthly
regular
 Subjects
Subjects / Keywords: Agriculture -- Statistics -- Florida   ( nal )
Agriculture -- Periodicals -- Florida   ( nal )
Agricultural extension work -- Periodicals -- Florida   ( nal )
Agricultural extension work -- Periodicals -- Florida   ( lcsh )
Agriculture -- Periodicals -- Florida   ( lcsh )
Agriculture -- Statistics -- Periodicals -- Florida   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
periodical   ( marcgt )
serial   ( sobekcm )
 Notes
Dates or Sequential Designation: no. 1- Nov./Dec. 1974-
Funding: Electronic resources created as part of a prototype UF Institutional Repository and Faculty Papers project by the University of Florida.
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Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved, Board of Trustees of the University of Florida
Resource Identifier: aleph - 000301142
oclc - 01525473
notis - ABS7625
System ID: UF00056203:00001

Table of Contents
    Copyright
        Copyright
    Critical issues facing the small farmer
        Page 1
        Page 2
        Page 3
    Reference
        Page 4
Full Text





HISTORIC NOTE


The publications in this collection do
not reflect current scientific knowledge
or recommendations. These texts
represent the historic publishing
record of the Institute for Food and
Agricultural Sciences and should be
used only to trace the historic work of
the Institute and its staff. Current IFAS
research may be found on the
Electronic Data Information Source
(EDIS)

site maintained by the Florida
Cooperative Extension Service.






Copyright 2005, Board of Trustees, University
of Florida








INSTITUTE OF FOOD AND
AGRICULTURAL SCIENCES
UNIVERSITY OF FLORIDA


FLORIDA
COOPERATIVE
EXTENSION SERVICE


IFAS


July August 1981


CRITICAL ISSUES FACING THE SMALL FARMER

Christina H. Gladwin *


Food production in the US is undergoing a "revoluti
which has widespread implications for the survival of far
farms in Florida. The symptoms of this national trans
nation are a decrease in the numberof farmsand an incr
in the average size of farm.
Concentration in farmland acreage now is so exten
that only a few of the largest farms (6.6% in 1978) con
more than half (54.1%) of the land in farms. Moreover,
centration in production is such that farms with less t
$40,000 in value of sales represent 78 percent of all fa
but only 18 percent of sales, while farms with sales ab
$100,000 are 7.1 percent of all farms but have 56 perch
of the total sales.7 Further concentration of land owner
and production, moreover, is not a break from the past
seen in Figure 1, which shows the total number of farms
dining from 6.8 million in 1935 to 2.7 million in 1978,
the average size of farm increasing from 140 acres to
acres (by the old definition of a farm).7


Millions
7,-


Ac


Number of farms New definition
.. ,........--
Old definition

.New definition -
..""..-"'"""' Average size of farms


uIJ o I*.* ****i..,* ... .. ...l.. ...I,,l,,,, Jjjj. j, 0
1920 25 30 35 40 45 50 55 60 65 70 75 80
Sources Arsge see of farms 1920 50 from 1964 Census of Agrcuhure
AJ other data from Crop Repotng Board. USDA
Figure 1. Number and average size of farms in US.

If present trends continue, more concentration of farm
wealth and production coupled with fewer farms can be ex-
pected in the year 2000:
a) the total number of farms will decline to 1.8 million,
and will probably have a bimodal distribution: a large
proportion of small farms, an increasing proportion of
large farms, and a declining number of medium-sized
farms managed by full-time farmers.


on"
nily
for-
ease

sive
trol
:on-
L


b) capital requirements will accelerate, implying that the
low equity, young, potential farmers will have even more
difficulty getting started farming. The number of new
farmers under 35 years of age will decrease by 40 per-
cent.5

Societal goals


"an Present concerns over the projected disappearance of the
rms smaller (or medium-sized) family farm, managed by a full-
ent time (male) farmer, assume that the following goals are to
S some extent shared by American citizens:
ship a) The family farm, traditionally the backbone of the
t, de- American agricultural system, should be maintained.
and b) Equity for producers: Farming as a business should
400 not be restricted just to large corporations. Talented and
dedicated small to medium-sized producers should not
be barred from entering the profession of farming (This
res does not suggest that everyone wanting to farm should
700 be guaranteed the right to do so.).
c) US agriculture should be as productive and efficient
600 as possible and ensure equity for consumers of agricul-
tural commodities.
500 d) Natural resources of land, water, air should be con-
served.
400 Clearly, the extent of individual and group concern over
"structure" issues and problems depends on the extent to
300 which these goals are important to the individual or the
group.


Changes for Small Farmers


Although the factors influencing the trend toward bigger
and fewer farms are interrelated and complex, the individual
farm family may see the following aspects of the recent
changes in US agriculture as especially problematic.

1. The difficulty of acquiring land

Traditionally, most of the land operated by the family
farmer has been owned by the family. Due to current in-
flated land costs and tax policies, however, it has-now be-
come difficult for the beginning farmer to buy land and get
established as a family farmer.
Inflation, which tripled the value of land and buildings,
machinery, livestock, and crops in the years between 1960
and 1978, encourages established land owners, whether resi-


*Assistant Professor, Food and Resource Economics Department, IFAS, University of Florida, Gainesville, Florida 32611.



The Institute of Food and Agricultural Sciences is an Equal Employment Opportunity Affirmative Action Employer authorized to provide research,
educational information and other services only to individuals and institutions that function without regard to race, color, sex, or national origin.


FLORIDA FOOD AND RESOURCE ECONOMICS


No. 41


~ LOs
r
cC1 ~-


,






-9


dent or absentee, to hold onto their land.6'7 Further, a
farmer's ability to use debt financing, always greater for the
established owner-operator than for the beginning farmers,
determines who can buy farmland. In times of high rates of
inflation and interest, would-be beginning farmers cannot
borrow the money to buy land and repay that loan with
farm earnings.7 It is difficult, if not impossible, for the low
equity young farmer to have a favorable cash flow if he
does buy land.6 Tax rules are another of the factors which
determine who can buy farmland. Many advantages can ac-
crue to established owner-operators through state preferen-
tial assessment laws enacted in many states. Absentee land-
owners can obtain a preferential tax status through con-
tinued land purchases and debt financing. Tax exempt insti-
tutions (e.g. pension funds) also enjoy a tax-exempt status
and don't have the cash flow problems of a small farmer.
"Small and beginning farmers are at a clear disadvantage in
buying land. The impact of these land-acquisition
problems can be seen in the concentration of farmland acre-
age in the hands of a few, and in the older age of farm oper-
ators: e.g., the average age of Florida farmers in 1978 was
51 years.
Can something be done to alleviate small farmers' land-
acquisition problems? Some studies suggest:
1) starting a federal loan program for "beginning" farm-
ers who have had some experience farming on borrowed
or rented land, but have encountered difficulties in buy-
ing land.
2) encouraging non-cash partnerships or arrangements
between small farmers, in which an older farmer contrib-
utes land in return for labor provided by the younger
farmer;
3) developing a state program to provide financial assist-
ance to beginning farmers, such "one carried out by the
Canadian province of Saskatchewan. Under this program
the Saskatchewan Land Bank Commission acquires title
to land which it in turn leases or sells to beginning farm-
ers... After a period of five years as a lessee, the farmer
may make application to buy the land."

2. Increasing costs of production and indebtedness

Both the prices of farm inputs and the quantities used
by farmers have Increased greatly in recent years. Produc-
tion input prices have increased an overall 138% from 1960-
1977. As Figure 2 shows, price of agricultural chemicals in-
creased 72% from 1967 to 1980, with farm machinery ris-
ing 220%, farm real estate 300%, farm wage rates 185%,
and fertilizer costs 147%. In 1950, production expenses
were 60% of gross farm income nationally; in 1979 they
were up to 78% of gross farm income.2
Partly as a result of increasing production expenses,
farmers' indebtedness has also increased "at rates never ex-
perienced before."2 Nationally, farm-sector debt increased
from $12 billion in 1950 to $158 billion in 1980.7 In Flori-
da, farm real estate debt rose from $240 million in 1960 to
$1786 million in 1979, while farm non real estate debt rose
from $110 million in 1960 to $844 million in 1979.2 In
Jackson County, one young farmer who operated 300 acres
in 1977 with an operating expense loan of $10,000 has in-
creased his acreage to 400 acres in 1981 but with an operat-
ing expense loan now of $39,000 (only four years later).
Indebtedness problems of Florida family farmers have
been exacerbated in the period from 1975 to 1980 by
bad weather: 1977, 1979, and 1980 were declared disaster


% of 1967
400 -


1967 70 75


Figure 2. Prices of selected farm inputs.
years in North Florida. FmHA (Farmer Home Administra-
tion) disaster loans have allowed young farmers who are
risk-takers to expand their farming operation and pay for
new equipment at cheap rates, which for part of the loan
can be as low as 5 percent. After the second drought year in
a row in 1980, however, young farmers noted the disadvan-
tages of debt-servicing even "cheap-money" loans, in addi-
tion to repaying high operation-expense loans. As a result,
most older family farmers that were interviewed this sum-
mer now counsel slow expansion farm plans and a minimal
use of credit to young farmers. One FmHA supervisor inter-
viewed was more discouraging:

"Personally, in some cases I think we're just pro-
longing the agony. If the farmer's not catching up the
back interest, he's certainly not reducing his principal.
Plus he's going to have another year's depreciation on
his equipment. At minimum, it's 15 percent per year.
With the profit margin in farming now, there's no
hope: commodity prices would have to almost double
and input prices would have to remain fairly constant
for him to ever expect to pay out."

In spite of reaching the same conclusion that "small to
moderate-sized farmers who depend primarily on farming
for a living may have difficulty obtaining and repaying credit
funds in the years ahead," USDA nevertheless suggests that
FmHA provide loans, with as little subsidy as possible, to
limited resource small and medium-sized farms who provide
"credible" evidence that credit was not available from pri-
vate sources, since it is this group which "if viable and effic-
ient, could most effectively counter or at least moderate
the trend toward concentration in the farm sector, and as-
sure the pluralism and diversity necessary for a robust, com-
petitive and more shock-resistant agriculture." In addition,
they suggest that FmHA not provide loans to a) large farms
with annual sales above $200,000, since this group should
be assured of competitive access to funds through private
lenders, or b) rural farm residences with sales under $5000
annually, since this group generally has nonfarm incomes
above the national average for all families.7






-3 5-


3. Tax problems

Several kinds of taxes have created problems for small to
medium-sized farms, and have contributed to the concen-
tration trend.
The federal estate tax (called the widow's tax) has created
problems for inheritors of small farms for two reasons. First
is the fact that the federal estate tax law has until recently
treated any property held in joint tenancy as belonging to
the deceased spouse unless the surviving spouse can prove
he or she has financially contributed to the improvement of
the property. Since farm wives often contribute long hours
of labor, managerial skill, do the bookkeeping, but do not
make financial contributions to the farm, they have often
in the past been faced with a federal and state tax bill upon
the death of their spouse, and have had to sell the farm in
order to pay taxes. The second problem was the size of
the exemption to the tax ($175,000 in 1981), which was
too small to exempt inheritors of a 100-acre farm with a
modest amount of equipment, priced at a fair market value
today.
The New Economic Tax Recovery Act of 1981 is a wel-
come reform, in that a) it allows property to be passed
from husband to wife and visa-versa without either an estate
or gift tax. There still may be problems for the small farm-
er, however, because the increase in the exemption is grad-
ual: $225,000 in 1982; $275,000 in 1983; $325,000 in
1984; $400,000 in 1985; $500,000 in 1986; and $600,000
in 1987. If inflation continues to drive the value of farm-
land up, or a farmer dies now, or there are questions of
"material participation", farm wives or children who inherit
the land may not be able to keep it together and farm it (J.
Wershow, personal communication).
There are other tax laws which were designed to benefit
both the small and large farmer alike but which actually
benefit the larger farmer more than the small, low-income
or beginning farmer. In the opinion of many, cash account-
ing allows farmers to report income while deducting the
costs of developing farmland and herds of animals -- ex-
penses with later pay-off.7 The costs are thus separated
from the income which generated them, are deducted from
normal income, and can be used to shelter income which
otherwise would be taxed at a higher tax rate. Income from
the sale of some of these assets (e.g., a new generation of
purebred animals) can also be treated as capital gains and
thus taxed at a rate much lower than ordinary income. In
addition, investment tax credits are available to farmers
who want to buy certain kinds of machinery, equipment,
and buildings, and are subtracted directly from the amount
of taxes due. Accelerated-depreciation allowances are an-
other tax shelter which can be used to off-set income that
would otherwise be taxed at the highest tax rate, and so
confer the greatest benefits on established farmers.



4. Continual investment demands of new technology

Technological change in US agriculture, which has great-
ly increased production on a given land base since 1925, has
also contributed to concentration and created problems for
the survival of the smaller farm. Although studies show that
most (53 percent) research in the state agricultural ex-
periment stations, which have played an important but not
exclusive role in developing new technology, has been size


neutral, i.e., not slanted toward large farms," technological
change is almost never neutral. It frequently provides an ~d-
vantage to those who seek or can readily adapt to change."
Cochrane provides a scenario whereby adoption of new
technology is a plausible reason why some small farmers go
out of business.4 When a cost-reducing, yield-increasing
technology becomes available, some farmers (the early
adopters) adopt it, reduce their "unit costs," and expand
their output. Although aggregate output increases, the price
of the product doesn't fall if bolstered up by either the gov-
ernment support programs of the 60's or the strong world
market demand of the 70's (and surely the 80's). Given
good prices for their produce, the early adopters try to ex-
pand their acreage as a way to further increase profits.
Since their unit costs of production do not increase at first,
because they are expanding over a size range subject to
"constant returns to scale," profits increase with expansion.
Eventually, the price of land, in fixed supply, will be driven
up; but before it is, the early adopter will have bought out
several kinds of farmers: the retired, the deceased, the farm-
er who is pulled to the city by a higher nonfarm income,
and the less efficient, higher-cost producer who either
adopted too late or didn't adopt.
Clearly, "without mechanical innovations certain farm-
ers could not have expanded their acreage as much or as
fast"; without biological and chemical innovations, food
prices would have been much higher and world food short-
ages more severe. Encouraged by relatively cheap capital
and energy, price-support programs, tax policies that en-
couraged expansion, some farmers expanded -- and left oth-
ers behind -- to take advantage of output-increasing technol-
ogies. The trend toward fewer and larger farms is partly the
result of a technologically dynamic, highly competitive agri-
culture.3
Seen through the eyes of the smaller farmers, a techno-
logically dynamic agriculture is not always a blessing, since
it often means continual investment and reinvestment in ex-
pensive equipment and machinery. As one Florida chicken-
house owner complained, "The company won't give us
chickens unless we're in debt." Another example is given by
a demonstration of new low-energy technology in the form
of a minimum-tillage planter I recently witnessed in North
Florida. Although most small farmers in the area have 40 to
50 horsepower tractors, the planter used in the demonstra-
tion required an 80 horsepower tractor. In order to take ad-
vantage of low-energy technology in the future, small farm-
ers in the area will either have to buy new and bigger trac-
tors -- or be left behind.
One refreshing approach to solving the problems created
by a constantly-changing agricultural technology is the in-
novative "farming systems research and extension (FSR/E)"
program started at IFAS, at the University of Florida. The
new FSR/E program uses a multidisciplinary team of agron-
omists, economists, and animal scientists working together
in a joint effort, and tries to find practical solutions to
farming problems facing the small farmer. An important
aim of the program is to start from the farmer's level of
technology, given his (or her) resource base (e.g., the size of
his tractor), and given the possibly-unchangeable institu-
tional constraints of land, water, and credit availability the
small farmer operates under. In an environment favorable
to large-scale agriculture and in many ways hostile to small-
scale agriculture, the FSR/E program searches for a direct
way to influence the nature of the technology being offered
to small farmers. Currently, in a pilot project in Suwannee
and Columbia counties, the program is developing reduced-











tillage equipment for 20 to 40 horsepower tractors, and
looking for alternative crops to corn.



Future Implications

In conclusion, innovative programs at both the state and
federal level are needed, if the family farm in Florida is to
survive. If such programs are not forthcoming, will the de-
cline in the number of farmers stop when all the small farms
with less than $20,000 gross sales have ceased to exist? The
Cornell report on agricultural research at the state experi-
ment stations and the family farm concludes that, unless
the above-mentioned forces are "somehow turned around,"
farms with gross sales of $20,000 to $39,999 will "fall by
the wayside with great rapidity in the 1980's," .. and...
"the demise of farms irthe $40,000 to $99,999 category
will not be far behind." Do they see any way out for the
smaller or family farm?

"There are policy steps that American society can
take to strengthen the competitive position of farm-
ers falling in the gross sales class of $20,000-$99,999
and thereby reduce their vulnerability to business fail-
ure. These policy steps include a revision of the tax
laws, increased management assistance with regard to
technology, changed commercial practices and finan-
cial arrangements, a new and changed policy with re-
spect to mechanization, various kinds of subsidies to
these small-to-moderate-sized farms, and the provi-
sions of a greater number of off-farm employment
opportunities.


REFERENCES


1Bleden, Joe, Gibby Edwards, Cynthia Guyer and Lee Webb, New
Directions in Farm, Land and Food Policies: A Time for State and
Local Action. Washington, DC: Agriculture Project, Conference on
Alternative State and Local Policies, 1980.
2van Blokland, P.J., Trends in Agricultural Finance with Reference
to Florida. Florida Food and Resource Economics Newsletter No.
38, FRED, College of Agriculture, IFAS, University of Florida,
Gainesville, Jan.-Feb., 1981.
3Carter, Hal O., Willard W. Cochrane, Lee M. Day, Ronald C.
Powers, and Luther Tweeten, Research and the Family Farm: A
Paper Prepared for the Experiment Station Committee on Organi-
zation and Policy. Ithaca, NY: Cornell University, February, 1981.
4Cochrane, Willard, W., The Development of American Agriculture:
A Historical Analysis. Minneapolis: University of Minnesota Press,
1971.

5Lin, William, George Coffman, and J.B. Penn, US Farm Numbers,
Sizes, and Structural Dimensions: Projections to Year 2000. Wash-
ington, DC: National Economics Division, Economics, Statistics
and Cooperative Service, USDA, Technical Bulletin No. 1625, July
1980.
6McNabb, Coy G., and Martin K. Christiansen, How Do Public
Policies Affect Beginning Farmers?, University of Missouri --
Columbia, Science and Technology Guide, 1980.
7United States Department of Agriculture, A Time to Choose:
Summary Report on the Structure of Agriculture, Washington,
DC: USDA, January 1981.
8United States Department of Agriculture, 1980 Handbook of
Agricultural Charts, Agriculture Handbook No. 574, Washington,
DC: USDA, October, 1980.


Food and Resource Economics Department
1157 McCarty Hall
University of Florida
Institute of Food and Agricultural Sciences
Gainesville, Florida 32611


Address editorial comments or correspon- Articles appearing in Florida Food and Re- This public document was promulgated
source Economics may be reproduced, in whole
dence concerning address or mailing to For- or in part, without special permission. News- at an annual cost of $300.00 or $.06 per
rest Stegelin or Mike Ellerbrock, Food and papers, periodicals, and other publications are copy to give research results and economic
Resource Economics Department, University encouraged to reprint articles which would be information on Florida food and agricul-
of Florida, Gainesville, Florida 32611. of interest to their readers. Credit is requested tural industries.
if information is reprinted.