MINNESOTA AGRICULTURAL ECONOMIST

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1 MINNESOTA AGRICULTURAL ECONOMIST No. 662 September 1990 The Changing Structure of Minnesota Agriculture C. T. Papadas and D. C. Dahl Minnesota agriculture changed significantly between 1950 and By the end of this period there were less than half as many farms and nearly twenty percent fewer acres devoted to farming. The geographic concentration of the state's agriculture moved south and westward, and it became markedly more specialized in terms of farm enterprise combinations. This issue of the Minnesota Agricultural Economist examines the structural characteristics of Minnesota's agricultural economy: farm size distribution, regional patterns, types of farms, inputs used in farm production, and types of farm organization. The principal information sources used here are the state statistical volumes of the U.S. Census of Agriculture for 1950, 1987, and the seven intervening agricultural census years. This descriptive analysis is a by-product of ongoing research in the pricing and marketing of major agricultural inputs. It provides a basis for identifying structural change rather than giving reasons for it. C. T. Papadas is a graduate research assistant and D. C. Dahl is a professor; both are associated with the Department of Agricultural and Applied Economics, College of Agriculture, University of Minnesota. The authors wish to acknowledge the helpful review comments of Wilbur Maki, Philip Raup, and W. Burt Sundquist. Farm Size Distribution Table 1 presents historical data on the number of farms in Minnesota for census years from 1950 to The decline in farm numbers averaged more than 3,300 per year until 1974, suddenly evened out between 1974 and 1979, and returned to a pattern of decline after Though other factors played a role, very high farm prices in the early and middle years of the 1970s encouraged farmers to remain in agriculture. After 1979 and the onset of the financial crisis of the 1980s, farm number decreases began again, but not at the rapid pace of the 1950s and 1960s. Minnesota farm land decreased by more than six million acres from 1950 to 1987, probably encouraged by various government programs that stressed 1 Since the first definition of a farm used in 1850, it has changed nine times. For the time period of the study, 1950 and 1954 farms were businesses engaged in growing livestock or crops that had a minimum of three acres or a minimum value of sales of $150. For the census dates of 1959, 1964, and 1969, a "farm" needed an acreage of ten acres or more and at least $50 value of sales. An enterprise could still be considered as a farm if it had less than ten acres but the value of agricultural products sold was higher than $250. Finally, for all the censuses including and after 1974, the definition required a value of sales of at least $1,000 or the potential of selling products of at least $1,000 or the potential of selling products of this value under normal conditions. decreased farm production and land preservation policies. Despite rapid decreases in the amount of farm land used, farm size increased. Average farm size went from 184 acres in 1950 to 312 acres in Acreage Distribution Farms are commonly measured in size by either their acreage or their gross sales. Table 1 shows the distribution of farms by acreage for the 1950 to 1987 census years. The number of farms in Minnesota decreased by 52.5 percent from 1950 to Most of the decline occurred during the first half of this period. In the beginning of the 1970s this downward trend stopped and reversed. In the 1980s the decline resumed. Farms with more than 500 acres were an exception to this trend, increasing both in absolute and relative terms. The increase of farms with more than 1,000 acres was rapid across this entire period. Farms with 500 to 1,000 acres also increased throughout this period, though the increase slowed in the late 1960s and early 1970s. The two medium size classes ( and acres) had substantially reduced numbers across the 37-year period. The classes followed different patterns, however. The acre farms accounted for nearly half of all fanns in the state in 1950, but less than

2 Table 1. Farm Size Distribution by Acreage In Minnesota, Farms- Total number 85,079 94,382 98,671 98, ,747 Land in Farms - Acres 28,573,819 27,708,456 28,459,790 27,605,228 28,785,240 Average Size of Farm Farms by Size 1 to 9 Acres 4,613 4,547 3,472 2,652 2, to 49 Acres 9,481 10,461 8,775 6,846 6, to 179 Acres 24,947 29,258 32,267 34,443 40, to 499 Acres 30,963 35,897 40,461 42,356 49, to 999 Acres 10,814 10,602 10,593 9,637 8,915 1,000 to 1,999 Acres 3,619 2,935 2,529 2,160 1,630 2,000 Acres or More Percentages of Farms-- Farms by Size 1 to 9 Acres to 49 Acres to 179 Acres to 499 Acres to 999 Acres ,000 to 1,999 Acres ,000 Acres or More Source: U.S. Census of Agriculture (years indicated above) *As farms of 1,000 acres or more , , , ,101 30,804,980 30,796,097 32,284,539 32,883, ,433 2,925 5,676 6,045 8,237 10,128 12,066 15,032 52,544 63,776 77,163 88,675 58,948 62,223 64,511 64,291 7,737 5,773 5,084 4,468 1, Included above* Included above * percent in Farms with acres retained their earlier percentage share level, but decreased in number by nearly 34,000. The smaller size classes (1-9 and acres) reduced their numbers between 1950 and 1969, but the beginning of the 1970s was a turning point. The downward trend was reversed with these farms increasing in both absolute and relative terms for the remainder of the period. The favorable price and income situation during the 1970s may have encouraged small farmers to stay in the sector, but this reason was not enough to explain the upward trends of small farms. They increased even after the conditions of the 1970s had changed. Given the economic and social conditions of this period, it is more reasonable to believe that increased part-time farming is one of the main reasons for increases in the number of very small farms. Demographers have also identified an exodus of urban people from the central city and suburbs to rural areas. A limited and simple test of this latter hypothesis was made by comparing small farm numbers in the eleven-county Twin City greater metropolitan area in 1969 and Nearly twenty percent of the state's small farms (fewer than 50 acres) were in this area in 1969, growing to nearly 23 percent in Value of Product Sales Census data classifying farms according to the value of their sales must be adjusted to allow valid comparisons. The changing value of money must be used to deflate sales intervals, create new ones, and make income data comparable. Three years were examined: 1950, 1969, and The intervals of the census were adjusted using the deflator price index of the GNP. Data on this index were taken from the Economic Report of the President using a base year of After the deflation, some intervals -- different for each year -- were adjusted to form new ones that would be reasonably comparable. 2These counties include Ramsey, Hennepin, Washington, Dakota, Scott, Carver, Wright, Sherburne, Anoka, Isanti, and Chisago. Five classes were created according to the value of agricultural products sold. The numbers of farms belonging to each class for the three census years are presented in table 2. In the same table the nominal sales intervals of each year are presented for each of the five classes. (For example, the interval of $6,000 to $9,999 in 1950 is approximately equivalent to the one of $10,000 to $19,999 in 1969 and to the one of $25,000 to $49,000 in 1987). The final column presents the percentages of every class with respect to the total number of farms in the state. The first two classes with the smallest value of sales decreased in absolute terms during the first half of the period, although in relative terms they remained quite stable. Later, they started increasing in both absolute and percentage terms. The two intermediate sales groups (classes 3 and 4) had rapid declines in both their numbers and percentages. Class 5 farms increased in absolute numbers, by 37 percent, and in relative terms. Table 2 data show that the nature of the structural change measured by sales 2

3 Table 2. Farm Size Distribution by Value of Sales in Minnesota, 1950, 1969, and Sales Classes 179,101 % Class 1 $1 to $599 16, Class 2 $600 to $1,499 18, Class 3 $1,500 to $5,999 80, Class 4 $6,000 to $9,999 37, Class 5 $10,000 and over 23, Sales Classes 110,747 % Sales Classes $1 to $ ' $1 to $2,499 $1,000 to $2,499 11, $2,500 to $9,999 $2,500 to $9,999 34, $10,000 to $24,999 $10,000 to $19,999 27, $25,000 to $49,999 $20,000 and over 26, $50,000 and over 85,079 % 11, , , , , is similar to that provided by the data on farm size distributions in terms of acreage. The size distribution of farm numbers in the smaller sales classes is similar, in absolute terms, to farm numbers of the smallest acreage classes. The medium sales classes (3 and 4) behaved like the medium acreage classes. Class 3 numbers declined faster than the numbers of Class 4, which were increasing in percentage terms for the first part of the period. Finally, the highest sales class increased in absolute and relative numbers, as did the highest acreage classes. Map 1. Percentage decreases in numbers of farms ( ) Some Regional Patterns Map 1 shows Minnesota counties according to the percentage decline in the number of farms from 1950 to Very large decreases were recorded in the northern part of the state, especially in the northeastern area. The decline was less rapid in the southern part of the state and also in some western and central counties. These latter counties had the largest percentage of farms in the state in Counties are classified in map 2 according to the percentage decreases from 1950 to 1987 in the amount of land in farms. In all counties but one, total farmland decreased. The decline in farmland was less rapid for the southern and central part of the state, where the land is of better quality and is less likely to be withdrawn from agricultural production. In terms of land in farms, the Western and southern part of the state increased in relative importance between 1950 and Less than 45% 45-55% 55-65% More than 65% 3

4 Types of Farms In comparing data on types of farms, 1954 to 1987 agricultural census year data were used. During this thirty-three year period, the number of farms in Minnesota declined 48.5 percent. In 1954, 94.6 percent of all farms in the state had harvested cropland, and by 1987 this percentage had dropped to 89.9 percent. Though most farms continued crop production, many gave up associated livestock enterprises. The number of farms with livestock showed the most significant changes during this one-third century. In 1954, 84 percent of all farms reported inventory of cattle and calves and by 1987 the number declined to 47.3 percent. In 1954, 74 percent of all farms had milk cows, but by 1987 this percentage was only Other types of livestock farms also declined significantly. In 1954, farms with inventory of hogs and pigs were 60 percent of all farms and in 1987 they were only 18.9 percent, despite the fact that the total swine inventory -- after some variations -- remained almost the same across the years. Farms that reported inventory of sheep and lambs were 13.4 percent of all farms in 1954 and only 5 percent in Finally, farms that reported sales of poultry or poultry products exhibited the most significant relative decline of all types of farms. From more than 112,000, or 68 percent of all farms in 1954, farms reporting poultry and eggs declined to 3,700, or 4.3 percent of all farms by Farms with harvested cropland exhibited a much slower rate of relative decline. Four major crops were examined: corn for grain or seed, wheat for grain, soybeans for beans, and hay. For the latter, all the different major types of hay have been included (alfa lfa, small grain, wild hay, grass, silage, green chop, etc.). For corn and soybeans, the period examined was again ; for wheat, ; and for hay, Farms with harvested corn for grain or seed declined from 68.8 percent of all farms in 1954 to 60.4 percent in Corn, despite this small decline, became the most frequently grown crop in Minnesota in terms of farm numbers, Table 3. Types of Farms, 1987 and Base Years Livestock Sales (farms reporting) 1987 Dairy and dairy products 17,269 Cattle and calves 39,972 Hogs and pigs 16,652 Sheep, lambs, and wool 4,200 Poultry and poultry products 3,688 Crops Harvested (farms reporting) Corn for grain or seed 51,355 Wheat for grain 20,238 Soybeans for beans 36,348 Hay (alfalfa, other tame, etc.) 46,531 Map 2. Percentage changes in land in farms ( ) I Less than 15% decrease 15-30% decrease 30-45% decrease More than 45% decrease Increase (3 %) Base Year 24,562 (1978) 126,164 (1954) 88,597 (1954) 4, 711 (1978) 7,108 (1978) 113,688 (1954) 30,204 (1964) 55,921 (1954) 77,134 (1969) 4

5 taking the place of hay. In 1987, 67.1 percent of all farms which harvested crops harvested com for grain or seed. Farms with wheat harvested for grain during remained at about 24 percent of all farms. The number of farms which harvested soybeans for beans decreased, but their percentage increased from 33.8 percent in 1954 to 42.7 percent of all fa rms in A significant reduction occurred in the farms which reported hay harvested. In 1969 they amounted to 66 percent of all farms and by 1987 this number had fallen to 54.7 percent. As farms quit the production of li vestock, many stopped producing hay as well. In table 3, historical data are provided for different types of farms. Maps 3-10 show regional distributions of farm types in Hay is excluded because it does not follow a strong geographical pattern. The counties have been classified according to the numbers of the Map 3. Farms that reported sales of dairy or dairy products (1987) Map 5. Farms that reported sales of hogs and pigs (1987) Map 7. Farms that reported sales of poultry or poultry products (1987) i 100 farms or fewer 300 farms or fewer and more than farms or fewer and more than 300 More than 500 farms 50 farms or fewer 150 farms or less and more than farms or fewer and more than 150 More than 300 farms i 40 farms or fewer 80 farms or fewer and more than 40 More than 80 farms Map 4. The dairy belt (1987) Map 6. Farms that reported sales of sheep and Jambs (1987) Map 8. Farms that harvested corn (1987) m More than 300 dairy farms i 50 farms or fewer 100 farms or fewer and more than 50 More than 100 farms 250 farms or fewer 500 farms or fewer and more than farms or fewer and more than 500 More than 750 farms 5

6 different types of farms. In map 4 we can see the continued existence of a historical "dairy belt." Maps 5-7 show the highest concentration of other livestock farms occurring in central and southern Minnesota. Maps 8-10 show a similar pattern for crop farms, plus western counties which exhibit a high grain concentration. Southern and western counties have the richest soil, though the soils and climatic conditions of the western and northwestern are mostly conducive to wheat production. Inputs Used in Farm Production Table 4 presents some data on dollar expenses and the physical units of inputs used in farm production. Again, the data compared is for the period , although for some inputs the base year is different. Data on values have been deflated using the index of prices paid by farmers (base = 1977). The real value of land and buildings per farm increased by 211 percent between 1954 to 1987 and the real market value of machinery and equipment increased by 244 percent. Data on total per farm production expenses are available only for the period after In real terms from 1969 to 1987, these expenses increased by 49 percent. Between 1964 and 1987, fertilizer expenses exhibited (in real terms) an increase of 196 percent. During the same period, the real expenses for hired labor increased by 245 percent and increased by 182 percent for livestock and poultry feed. For livestock and poultry purchased, the increase in real expenses from 1959 to 1987 was 104 percent, while for agricultural chemicals, for , the increase was 255 percent. The relatively lower increase in the real expenses for livestock and poultry purchased reflects increased specialization. On the other hand, the higher increase in fertilizer expenses reflects the wide adoption of these soil supplements occurring during the last three decades. This can be seen in the lower part of table 4. About 45.2 percent of all farms in 1954 used commercial fertilizers, while in 1987 the percentage was 74 percent. As the table indicates, the amount of land on which fertilizer was applied increased significantly. Table 4. Inputs and Value of Inputs Used in Minnesota, 1954 and 1987 Nominal Values Year Value of land and buildings (Average per farm) $218,808 $21,051 Market value of machinery and equipment (average per farm) 55,741 12,349 (1969)* Total farm production expenses(perfarm) 52,039 12,357 (1969)* Commercial fertilizer (per farm) 3, (1964) Hired farm labor (per farm) 2, Livestock and poultry purchased {per farm) 6, (1959)* Feed for livestock and poultry {per farm) 8, Deflated Values (1977 = 100) $148,849 $47,843 37,919 23,748 (1969)* 35,400 23,764 (1969)* 2, (1964) 1, ,332 2,120 (1959)* 5,978 2,116 Agricultural chemicals (per farm) 2, (1969)* 1, (1969)* Commercial fertilizer Farms which used commercial fertilizer 62,703 (73.4%) 74,772 (45.2%) Acres receiving commercial fertilizer 11,815,747(44.4%) "'Base year, other than ,188,063 (13%) 6

7 Types of Farm Organization The U.S. Census of Agriculture classifies farms according to four types of organization: individual or family (sole proprietorship), partnership, corporation, and other (cooperative, estate or trust, institutional, etc.). Unfortunately, data on the types of organization were first published in 1969 and for 1969 and 1974 data were provided only for farms with sales of more than $2,500. Hence, comparable data are available only for three census years, 1978, 1982, and The data for the four types are presented in table 5 (in parentheses are percentage shares with respect to all farms in the state). For , corporations and the type classified as "other" are the only types that recorded an increase in absolute numbers, while the others decreased. In percentage terms however, only family or individual farms exhibited a small decline. Partnerships remained relatively stable while corporations increased in both absolute and percentage numbers. The most dominant corporations in terms of numbers are family held. In 1987, only 9.1 percent of the farm corporations were other than family held. Most of the counties with more than 10 corporations are located in the central and north central part of the state, while the remainder are concentrated in the southern part of the state. However, concentrations in the southern part appear more significant when we consider the small size of the southern counties. A very significant number occur in the northwest. In particular, in 1987 Otter Tail county had the largest number of corporations (159, or 9 percent of the total) followed by Kittson county with 59 corporations. All other counties follow with relatively small numbers. Table 5. Number and Percent of Farms by Organizational Type Individual or family 91,944 (89.3) (sole proprietorship) Partnerships 9,458 (9.2) Corporations 1,396 (1.4) Other 165 (0.2) average. We saw, for example, that from 1954 to 1987, Minnesota farms were reduced by 48.5 percent, while for the whole country the decline was 56.3 percent. The average farm size in Minnesota continues to be smaller than the U.S. average. The Minnesota average farm size increased by 60 percent from 1954 to 1987; for the U.S. during the same period the increase was 90 percent. Some specific characteristics of structural change have been more pronounced in Minnesota, such as the increase in small farms after the 1960s. It started sooner in Minnesota and it proceeded faster than in the whole Map 9. Farms that harvested wheat for grain (1987) ,010 (88.0) 75,1 05 (88.3) 9,530 (1 0.0) 7,952 (9.3) 1,582 (1.7) 1,755 (2.1) 260 (0.3) 267 (0.3) country. The basic trends though, for the different size classes, are the same. Livestock farms in Minnesota declined faster, partly due to the rapid decline of farms with cattle and dairy which was more modest for the U.S. Another interesting characteristic is that total production expenses from 1969 to 1987 have increased faster in Minnesota (224 percent) than in the whole country (188 percent). Minnesota's ownership structure is very close to the U.S. average. The most significant difference exists in corporations, which are 2.1 percent of all farms in Minnesota compared to 3.2 percent in the U.S. Map 10. Farms that harvested soybeansforbeans(198n Conclusion Changes in several important structural characteristics of Minnesota agriculture were examined. The state has followed trends similar to those for the total U.S. fa rm sector, but at different rates. First of all, the decline in Minnesota farm numbers is lower than the U.S. 150 farms or fewer 300 farms or fewer and more than farms or fewer and more than 300 More than 450 farms i 200 farms or fewer 400 farms or fewer and more than farms or fewer and more than 400 More than 600 farms 7

8 Minnesota's Largest Farms Increased concentration in Minnesota agriculture has resulted in a few very large farms. Ten percent of all the agricultural products sold in the state in 1987 were produced and marketed by 271large farms. Selected characteristics of these farms are presented (below) in comparison to state averages for the 1987 census year. These large farms have four times more acres, six times greater value of land and buildings, and more than five times more machinery and equipment (in dollar terms). The average gross value of sales by the large farms are six times greater than the "all farm" average. Minnesota's biggest farms had a greater participation rate and averaged nearly thirty thousand dollars in government program payments compared to about eight thousand for other farms. Livestock inventories, where appropriate, were substantially higher on large farms compared to the averages for the state in Characteristic Largest Farms State Average Average acreage 1, Average value of land and buildings $1,292,387 $218,808 Average market value of all machinery and equipment $314,070 $55,741 Average market value of all agricultural products sold $2,097,306 $66,719 Average farm production expenses $1,749,380 $52,039 Average payments from government programs $29,089 $8,379 Percent of farms receiving no government payments 47.7% 42.5% Average livestock inventories * Cattle and calves 1, Milk cows Hogs and pigs 3, *only for those farms reporting these livestock categories MINNESOTA EXTENSION SERVICE UNIVERSITY OF MINNESOTA W. B. Sundquist... Managing Editor Richard Sherman... Production Editor Prepared by the Minnesota Extension Service and the Department of Agricultural and Applied Economics. Views expressed are those of the authors, not necessarily those of the sponsoring institutions. Address comments or suggestions to Professor W. B. Sundquist, Department of Agricultural and Applied Economics, 1994 Buford Avenue, University of Minnesota, St. Paul, MN Please send all address changes for Minnesota Agricultural Economics to Louise Letnes, 232 Classroom Office Building, 1994 Buford Avenue, University of Minnesota, St. Paul, MN The information given in this publication is for educational purposes only. Reference to commercial products or trade names is made with the understanding that no discrimination is intended and no endorsement by the Minnesota Extension Service is implied. The University of Minnesota, including the Minnesota Extension Service, is committed to the policy that all persons shall have equal access to its programs, facilities, and employment without regard to race, religion, color, sex, national origin, handicap, age, veteran status, or sexual orientation. f/{j;!( Randy Cantrell ~ Interim Program Leader Community Economic Development UNIVERSITY OF MINNESOTA, U.S. DEPARTMENT OF AGRICULTURE, AND MINNESOTA COUNTIES COOPERATING MINNESOTA EXTENSION SERVICE U.S. DEPARTMENT OF AGRICULTURE UNIVERSITY OF MINNESOTA ST. PAUL, MINNESOTA NONPROFIT ORG. U.S. POSTAGE PAID MPLS., MN PERMIT NO. 155 No. 662 September 1990