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Subsidies accelerate farm growth, study shows

Agriculture.com Staff 12/04/2007 @ 10:34am

New USDA research shows a higher number of federal farm subsidy dollars are going toward larger farms that, as a result, are growing larger still out of necessity. It's one of a few theories surrounding farm size and its relationship with the amount of federal support garnered by farms in the U.S.

But, it's more complicated than a simple "farm size begets payments" scenario, according to Nigel Key and Michael Roberts, authors of a recent ERS report entitled "Commodity payments, farm business survival and farm size growth." While larger farms are receiving more payments, it's not necessarily unfairly so, Key and Roberts write, as those farms are producing a growing amount of the total U.S. ag output. In 2002, for example, almost 20% of the nation's corn crop came from farms over 1,000 acres in size, a 4.6% increase from 1987.

"Farmland has shifted to larger enterprises in most commodities and in most parts of the country, although the rate of growth varies substantially by location and across commodities. Commodity program payments per acre displayed a strong positive association with subsequent increases in cropland concentration," write Key and Roberts.

"The association between payments and concentration growth was maintained after controlling for several factors that might affect concentration growth, including the initial (beginning of period) level of concentration, land characteristics such as crop sales per acre, the share of cropland in all farmland, and location."

Other factors beyond sheer farm size enter into the equation. One of those is the lifespan of a farm business. When looking at the top and bottom ends of subsidy data, this trend is clear. But, an operation's lifespan may be a function of both farm size and federal subsidy level, the authors add.

"The 25% of farms with the highest payment as a share of sales had a longer lifespan than farms in the lowest quartile. After controlling for farm and operator characteristics that might be correlated with farm survival, the positive relationship between program payments and farm survival rates persisted," Key and Roberts write. "Commodity program payments appear to have a larger effect (on estimated farm business lifespan) for operations with higher sales than for those with lower sales. A separate analysis of producers specializing in four major crop categories found that, conditional on survival, payments are positively associated with subsequent growth in farm size."

There remain other factors that can influence "structural change," the authors say, that weren't examined in the study. Some are "unobserved," which makes it difficult to deduce how they influence the trend toward larger farms and federal support payments.

"It is not possible to rule out other explanations for the association between payments and farm structure. If unobserved factors that influence concentration growth are also associated with government payments, then the association between payments and concentration may stem from the unobserved factors rather than payments," according to Key and Roberts.

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