Farm’s Tipping Point In South Dakota

By Alvaro Garcia

 A Western South Dakota county road shows the crop diversity of its landscape.

There are at least two possible ways to look at farm size. One is to divide them into small, medium, and large depending on how many acres they farm. Table 1 below uses Census of Agriculture figures to compare the evolution of acres farmed by South Dakota farms. Between 2002 and 2012 small farms with less than 99 acres increased by almost 35% in South Dakota. This is the group which has increased the most in numbers. Medium sized farms with 100-499 and 500-999, decreased in numbers by almost 7% and 22%, respectively. The group of large farms (those farming 1,000 acres or more) can be subdivided in two. The first subgroup with 1,000 to 1,999 acres decreased by 15%. The second larger acreage group of those farming 2,000 acres or more remained nearly unchanged between 2002 and 2012.

Figure 1. South Dakota: Farms by size (percent of total farms)

Focusing just on the surface farmed however does not give an idea of how much gross income is generated and if the farm is able to sustain a family. Another way to look at farm size then is to classify them according to their gross sales. Farms with gross sales lower than $9,999 are considered non-commercial or “hobby” farms (Figure 2). These farms do not rely on significant sales to supplement their household income with most of their budget generated off-farm. As a result these farms are not as affected by swings in agricultural input prices. Non-commercial small farms grew by 10% in South Dakota between 2002 and 2012 with most of this growth (8.5%) happening up to 2007.

Small commercial farms are the group that seem to be most vulnerable in South Dakota. Small commercial farms focus on commodities that do not necessarily require a full-time commitment of labor thus allowing at least one of the operators to work off-farm. Examples of activities in the state are poultry, dairy, beef (cow/calf or stocker enterprises), hay, cereal grains and oilseeds. This group can be subdivided in two (figure 2): a group with $10,000-$49,999 in gross sales, and a second group selling $50,000-$99,999.

Small commercial farms losses

In 2012 there were 102,955 persons living in farms households in South Dakota. The total number of farms in 2012 was 31,989 and thus the average farm household had on average approximately three members. According to the 2009-2013 Five-Year American Community Survey Estimates the median household income for South Dakota was $64,133 the lowest of all Midwestern states. Figure 2 classifies South Dakota farms by their gross sales using figures from the 2013 USDA Economic Research Service report. To classify farms as “small” by their gross sales one needs to take into consideration where they are located in the country. Limited total sales in one location can be quite sufficient in another since living and input expenses could be much lower.

For example the USDA ERS report defines small farms in the US as those where gross sales are less than $250,000. Since the median farm income in the state is $64,000 and it is able to sustain a three-person household then the bracket of $50,000 to $99,999 seems to be quite more accurate to describe the upper limit for “small” South Dakota farms. Since there is no $64,000 bracket reported by the USDA ERS (figure 2), small South Dakota farms can be considered those with sales up to $99,999. Between 2002 and 2012 the state lost 35% of the farms in the first group and 36% of the second group. Although one could speculate this could be an artifact of the farms in the lower group increasing in gross sales and thus being counted in the next sales’ category, this is not the case since both groups decreased dramatically, and so did the very next group of medium sized farms. The disappearance of the small farms in the state can only be attributed to one thing: reduced size does not allow these farms to capitalize on efficiency of scale and thus their profitability suffers. Commercial small farms in the state are clearly not making it and are disappearing at a constant rate of 3.6% per year. Bear in mind that these figure constitutes 24% of all farms (31,989) or a loss of 276 farms per year.  

The tipping point

The efficiency of scale is starting to be appreciated in the next group, the medium-sized $100,000 to $499,999 gross sales category. This group could be considered a tipping point where South Dakota farms can either make ends meet or not but where at least sustainability in farm numbers improves and approaches equilibrium. Between 2002 and 2012 there was a 3.5% reduction in farm numbers in this gross sales group. This is nearly 10% of the losses of any the previous two groups. The effects of the efficiency of scale in the state can be observed more strikingly in the group of farms with the highest gross sales. In 2012 there were in South Dakota roughly 4,800 farms with gross sales in excess of half a million dollars. These farms have increased linearly in numbers between 2002 and 2012 at a rate of 38.5% per year from 1,237 farms in 2002 to 4,798 in 2012. It is possible that some of these farms are those in the previous gross sales group that enhanced their gross income, however they are likely not more than approximately 0.35% yearly, which was the reduction of farm numbers in that group. The advantage to size is thus clear. Aside of the “hobby farms” this group is the only one that has dramatically increased in the state. Economy of scale aside, there are at least two other factors that favor operations with large gross sales: access to the latest technology and cutting edge information. These farms don’t necessarily need to search for this information or be in the lookout for the latest seminar. New agricultural technologies and management practices come to them through companies interested in having them as clients. The greater the gross sales the more equipment and inputs are purchased to multiply this success.
 

Figure 2. South Dakota: Farms by sales in dollars (percent of total farms)