Wednesday, June 17, 2009

The Long Tail of Farming

The USDA's Structure and Finances of U.S. Farms: Family Farm Report, 2007 Edition tells us that there are 2.1 million farms in the US, the average farm generates around $75,000 in revenue, and the average farming family derives 82.5% of its income from off-farm sources.

While true, these statistics are misleading because just like like Digg and Wikipedia, church donations and income tax payments, and book writing, farms follow a long tail power distribution. Instead of farms following a bell curve, with a few large farms, a few small farms and lots of medium sized farms in the middle, farms follow a power distribution with a few large farms, a few more medium sized farms, and lots and lots of small farms. This long-tail can be seen in the chart at left and the table below.

Google Spreadsheet

5 points on the long tails of farms.

1) With regards to output, farms follow the 80/20 rule (actually the 85/15 rule) with 16% of farms accounting for 86.2% of total revenue and the other 84% account for just 13.8%.

Of the 2.1 million farms in the US, just 338,000 account for almost 7/8 of all production. The entire output of the 1.7 million small farms could be generated by 55,000 farms producing at the average medium/large farm. This means that 400,000 farms at that level of production could produce as much food as our current 2.1 million farms.

2) The long tail of farming is getting longer. On page 30 of the report it shows that over the last 10 years the number of large farms has been increasing and the the number of very small farms has been increasing (although this might just be due to a change in methodology) but the number of medium sized farms has been decreasing. I calculate that the exponent of the long tail of farming to be between 1.1-1.3 which would place it somewhere between the net worth of Americans and the population of U.S. cities.

3) Averages don't mean a whole lot with long tails. The average farmer works a small farm and makes little to no more money from farming. This is a meaningless statement as can be seen by adding home gardens to the analysis. This would greatly expand the number of farmers while adding little to the overall amount of food produced. But, it would greatly reduce the average farm size and the average revenue generated from a farm.

By breaking the analysis into small, medium and large farms we see a much different picture. The average small farmer gets 105% of his family revenue from off-farm (meaning on average they lose money farming) while medium farmers get 45.2% of their income off farm and large farms just 17.4%. It is just small farms that are getting the majority of income from off farm, while those medium and large farms (that produce 86.2% of output) are getting most of their income from farming. Instead of looking at the average income from farming, it makes more sense to look at the total number of farmers that get the majority of their income from farming.

Just as most book writers sell few books and do not make much revenue from their writing, so to are most farm small and make little money. But just as many of book writers have non-financial motivations, so too are many small farmers in the business for non monetary reasons. This can be seen by the fact that most small farms are categorized as either retirement" or "residential/lifestyle".

4) Output shows a much longer tail than land. Small farms account for just 13.8% of output but hold 40.9% of land. Large farms account for 45.4% of output with just 22.7% of the land.

5) When it comes to meat production there is a great divide as many small farmers raise cattle, but almost none raise pigs or chickens.

Calculations and Caveats

Small farms are defined as limited resource, retirement, residential/lifestyle, and low-sales farms. Medium farms are made up of medium sales, large scale family farms and nonfamily farms. Large farms are very large family farms.

Revenue is used to determine output. This over weighs the production of meat producers that purchase feed for their animals. It would be better if there was a way to subtract off the animal feed and look at just the amount of value that each farmed added.

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