Stable Farm Count Masks Turnover
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The U.S. farm count has been relatively stable in recent decades. The net decline in farm numbers totaled 185,000—or 6 percent—between the 1974 and 2002 Censuses. The small net change, however, masks substantial turnover in farms. About 40 percent of U.S. farms exit the farm sector (that is, go out of business) between agricultural censuses, which are taken every 5 years. Entrance rates are similar and also fairly high, between 31 and 37 percent, partially offsetting exits. ERS researchers examined trends in exit rates using data from the 1997 Census of Agriculture Longitudinal File.
In creating the longitudinal file, USDA’s National Agricultural Statistics Service merged data for individual farms from several censuses. The longitudinal file follows individual farm businesses associated with farmland, rather than operators. Thus, when an adult child takes over from a retiring operator, the farm is classified as a survivor rather than as an exit. Nevertheless, life-cycle changes can trigger farm exits. In a common pattern, farm operators become elderly, stop farming, and rent or sell their farmland to others who incorporate the farmland into their operations. The original farm business no longer exists.
Exit rates vary substantially by farm size (measured by annual sales) and by the age of the farmer. Exit rates decline as farm size increases, but 25-30 percent of the largest farms—those with sales of $250,000 or more—still exit between censuses. The exit rate hits bottom for farms with operators 45 years old, then increases, and peaks at more than 40 percent for farms with an operator at least 65 years old. Additional factors (besides the operator’s age and farm size) may influence a farm’s likelihood of exit, most notably the operator’s prior farming experience.
Annualized U.S. farm exit rates (not accounting for offsetting farm entry) are about 9-10 percent per year. These rates are comparable to exit rates for Canadian farms, after adjusting exit rates for differences in the size distribution of farms in the two countries. Also, the U.S. farm exit rates are within 1 percentage point of those for all U.S. small nonfarm businesses with no employees. In general, small businesses have a high exit rate, and most farms are small businesses.
This article is drawn from...
Structural and Financial Characteristics of U.S. Farms: 2004 Family Farm Report, by David Banker and James MacDonald, USDA, Economic Research Service, March 2005
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