The Changing Structure of Agriculture

Independent Insurance Agents of IowaRural Agents Conference

January 26, 2006   

Michael DuffyDirector, Beginning Farmer Center

       

The Changing Structure of Agriculture: Outline

•Farming•Agribusiness•Consumption

The Changing Structure of Agriculture: Farming

• A farm is defined as any place that sold or could have sold $1,000 worth of agricultural products. This definition has been used since 1974

• Case of the disappearing middle• Tight margins• Increased reliance on government payments• Aging population• Changing rural environment

General Characteristics and Demographics

Number of Farms in Iowa

0

50,000

100,000

150,000

200,000

250,0001

91

0

19

14

19

18

19

22

19

26

19

30

19

34

19

38

19

42

19

46

19

50

19

54

19

58

19

62

19

66

19

70

19

74

19

78

19

82

19

86

19

90

19

94

19

98

20

02

Land in Farms in Iowa

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

(00

0 a

cre

s)

Average Farm Size in Iowa

0

50

100

150

200

250

300

350

400

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

Perecent of Iowa Farms by Sales Class

0%

10%

20%

30%

40%

50%

60%

70%

1978 1982 1987 1992 1997 2000 2004

< $10 K $10K - $1000K $100K - $500K > $500 K

Farm Distribution by Type of Farm, 2004

0%

5%

10%

15%

20%

25%

30%

35%

40%

Limite

d-re

sour

ces

Retire

men

t

Resid

entia

l/life

style

Lower

-sale

s

Highe

r-sal

es

Larg

e

Very l

arge

Nonfa

mily

U.S. Iowa

Percent of Iowa Farms and Sales by Sales Class, 2002

0%

5%

10%

15%

20%

25%

30%

Farms Sales

Percent Change in Iowa Farms and Sales by Sales Class, 1997-2002

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

< $1

,000

$1 to

$2,

499

$2.5

to $

4,99

9

$5 to

$9,

999

$10

to $

19,9

99

$20

to $

24,9

99

$25

to $

39,9

99

$40

to $

49,9

99

$50

to $

99,9

99

$100

to $

249,

999

$250

to $

499,

999

$500

to $

999,

999

> $1

M

Farms Sales

Percent of Iowa Farms and Land by Sales Class, 2002

0%

5%

10%

15%

20%

25%

30%

< $1,000 $1 to$2,499

$2.5 to$4,999

$5 to$9,999

$10 to$24,999

$25 to$49,999

$50 to$99,999

$100 to$249,999

$250 to$499,999

$500 to$999,999

> $1M

Farms Land

Average Age of Iowa Farmers

0

10

20

30

40

50

60

1964 1969 1974 1978 1982 1987 1992 1997 2002

Percent of Iowa Farmers Over 65 and Under 35 Years Old

0%

5%

10%

15%

20%

25%

1959 1964 1969 1974 1978 1982 1987 1992 1997 2002

< 35 > 65

Percent of Iowa Farms by the Number of Hours the Operator Worked on the Farm, 2003

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Less than 500 500 to 999 1,000 to 1,999 2,000 or more

Iowa Population Trends

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1940 1950 1960 1970 1980 1990 2000

Urban Rural

Iowa's Rural Population

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1940 1950 1960 1970 1980 1990 2000

Country Town Farm

Percent of Iowa's Rural Population Living on Farms

0%

10%

20%

30%

40%

50%

60%

70%

1940 1950 1960 1970 1980 1990

Income and Enterprises

Iowa Farm Output, Total Expenses, and Net Farm Income

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

$18,000,000

$20,000,000

Output Net Income Total Expenses

Iowa Net Farm Income as a Percent of Gross Income

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Iowa Direct Government Payments

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

Government Payments as a Percent of Net Farm Income

0%

20%

40%

60%

80%

100%

120%

140%

160%

Distribution of Government Payments, 1995 - 2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Top 1% Top 10% Top 20% Bottom 80%

Iowa U.S.

Distribution of Iowa's Land, 2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Percent of Total Land inFarms

Percent of FarmsHarvested

Percent of Farm Land inCorn and Soybeans

Percent of HarvestedLand in Corn/Soybeans

Distribution of Iowa's Cash Farm Receipts by Enterprise, 2004

0%

5%

10%

15%

20%

25%

30%

Ho

gs

Ca

ttle

Da

iry

Oth

er

LS

Co

rn

So

ybe

an

s

Oth

er

Cro

p

Go

vern

me

nt

pa

yme

nts

Percent of Iowa's Farms with Hogs and Pigs

0%

10%

20%

30%

40%

50%

60%

70%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Market Hogs on Iowa Farms

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

(00

0 H

ea

d)

Swine Breeding Herd in Iowa

0

500

1,000

1,500

2,000

2,500

3,000

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

(00

0 H

ea

d)

Number of Pigs per Farm with Swine

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Land

Average Iowa Land Values

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

Iowa Average Rents

$0

$20

$40

$60

$80

$100

$120

$140

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

Who Purchased Iowa Farmland

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Existing Farmers Investors New Farmers Other

Percent of Iowa Farmland Owned by Owners Not Living on a Farm

0%

10%

20%

30%

40%

50%

60%

70%

1982 1992 2002

Live on farm Not on a farm

Percent of Iowa Farmland by Residence of Owner

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Iowa Resident Non-Iowa Resident

1982 1992 2002

Distribution of Iowa Farmland by Age of Owner and Year

0%

5%

10%

15%

20%

25%

< 25 25-34 35-44 45-54 55-64 65-74 > 75

1982 1992 2002

Distribution of Iowa Farmland by Tenure Type

0%

10%

20%

30%

40%

50%

60%

Owner operator Cash rent Crop share rent Government

1982 1992 2002

Percentage of Leased Farmland by Type of Lease

0%

10%

20%

30%

40%

50%

60%

70%

80%

1982 1992 2002

Cash rent Crop share Other rent arrangements

Next Generation

Anticipated Method for Transfering Iowa Farmland

0

5

10

15

20

25

30

35

40

Will to family Will to other Give tofamily

Give toothers

Sell to family Sell toothers

Put in trust Other DK

Perc

ent o

f Far

mla

nd

Percent of Farms with Known Successor

0%

10%

20%

30%

40%

50%

60%

70%

80%

yes no

Percent of Iowa Farms with an Estate Plan

0%

10%

20%

30%

40%

50%

60%

Yes No

Source: 1999 Beginning Farmer Center Succession Survey

Sources of Income by Retirement Plans

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Sale of Land Sale of other Farm Soc Sec Private Invest Other

The Changing Structure of Agriculture: Agribusiness

• Disappearing middle• Increasing concentration

Top Five Grocery Retailers in the United States*

1997 2000

Kroger Co. Kroger Co.

Safeway Wal-Mart

American Stores Albertson’s

Albertson’s Safeway

Ahold USA Ahold USA

CR5 = 24% CR5 = 42%

* Source: Heffernan, William

Concentration Ratios for the Top Four Firms

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

BeefPackers

PorkPackers

Flour Dry Corn Wet Corn Bean Crush Ethanol

Percent of Export Market by the Same Three Firms

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Corn Soybeans

Number of Pork Slaughter Plants

0

100

200

300

400

500

600

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

Percent Hogs Slaughtered by Plant Size

0%

20%

40%

60%

80%

100%

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

% H

ogs

Sla

ught

ered

<300,000 300,000-999,999 1,000,000 +

Number of US Cattle Slaughter Plants

0

100

200

300

400

500

600

700

800

900

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

Cattle Slaughtered by Plant Size (thousands)

0%

20%

40%

60%

80%

100%

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

% C

attle

Sla

ught

ered

<500,000 500,000-999,999 1,000,000 +

Agribusiness Concentration

• Changes and increased concentration have occurred in almost all phases of agribusiness support– Seed– Machinery– Fertilizers– Pesticides

Consumer Patterns

U.S. Food Expenditure

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

1929

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

Bill

ion

Do

llars

Percent of Disposable Income Spent on Food

0

5

10

15

20

25

30

1929

1933

1937

1941

1945

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

Farm Share as Percent of Food Expenditure

0%

5%

10%

15%

20%

25%

30%

35%

40%

19

54

19

56

19

58

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

Percent of Food Dollar by Place

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%1

86

9

18

92

18

97

19

02

19

07

19

12

19

17

19

22

19

27

19

32

19

37

19

42

19

47

19

52

19

57

19

62

19

67

19

72

19

77

19

82

19

87

19

92

19

97

20

02

At home Away from home

Changing Structure of Agriculture; Concluding Thoughts

• Agriculture is changing and will continue to change at the production, processing and consumption level

• Production is dominated by a dual system with a large number of very small firms and a small number of large firms.

• These trends have been continuing for a number of years

Changing Structure of Agriculture; Concluding Thoughts

• Concentration in agribusiness is resulting in fewer large firms with an increasing share of the market provided by fewer companies.

• U.S. consumers spend a decreasing amount on food as such they are able to spend more away from home buying more of the attributes than the food

Changing Structure of Agriculture; Concluding Thoughts

• Consumer preference do change over time; some indication that other attributes besides convenience and price are important

• Energy price increases could slow or reverse some of the trends

• Very little is inevitable; the questions are should the U.S. be concerned with these trends and what could be done

Changing Structure of Agriculture; Concluding Thoughts

• Increasing concentration leaves the U.S. more vulnerable to supply disruption, bioterriorism, environmental impacts and pest changes

• Strategies could be pursued at both the national and state level; policies such as controlling anti-competitive behavior, internalizing the external costs, and supportive policies could all be enacted

Possibilities for Income for Beginning Farmers

• Farm with tight margins with a lot of volume• Widen the margins through management

and marketing• Alter production for non-commodity

commodities or alternative crops• Supplement income with off farm

employment (could be on farm)• Full time employment, farming part-time or

wait to start farming

Changing Structure of Agriculture

• Change is inevitable; the direction of the change is not

• We must decide as a society what type of agriculture we want and what we want from it

• Individuals have to decide how they are going to fit in the structure and operate accordingly

• The choice is ours

Thank you!

For more information contact me; • mduffy@iastate.edu• (515) 294-6160• www.econ.iastate.edu/faculty/duffy