USDA-Economic Research Service

Washington, DC

Small farms have characteristics that are related to their use of risk management programs, particularly federal crop insurance. Many small farms obtain most of their farm revenue from livestock sales, which are not covered by crop insurance. Small farms are also less likely than all farms to harvest cash grains or soybeans, commodities for which crop insurance is widely available. Although off-farm income often offsets low farm income, many small farm households have low total household income as well as low gross farm sales and farm asset values. Participants in crop insurance workshops have made suggestions on how agricultural insurance programs can better serve small farms.

Many U.S. farms are small. According to the 1992 Census of Agriculture, about 60 percent of the U.S. farms sold less than $20,000 per farm in agricultural products. Because small farm operators are often engaged in other economic activities, the small farms in this study includes only those with farm sales of less than $20,000 whose operators identified their principal occupation as farmer or rancher and reported working fewer than 50 days off the farm. These operators could be viewed as full-time farmers who operate small farms.

The enterprises of small farms are often different than those of all farms. A larger share of small farms obtain most of their revenue from livestock sales and small farms are less likely to harvest cash grains or soybeans.

Farm enterprises, such as livestock or crop production, are a part of the economic activity of the households associated with small farms. Off-farm income, such as wages and salaries from an off-farm job held by a farm household member, often offsets low farm income and provides protection against agricultural risks.

According to USDA's 1992 Farm Costs and Returns Survey, small farm households, on average, obtained virtually all of their income from off-farm sources. The largest source of off-farm income for small farm households was "other off-farm income," which includes social security. Although off-farm income raises total income in many small farm households, about one-quarter of the small farm households have low total household income as well as low gross farm sales and farm asset values. About half of these small farm households are in the South.

The small farms associated with these households with limited economic resources obtain about half of their gross cash farm income from livestock sales.

Federal crop insurance is offered to producers of about 60 crops nationwide. Crop insurance policies are sold by private insurance agents, but producer premiums are subsidized by the federal government. A producer who purchases crop insurance receives an indemnity if his or her yield falls below the guarantee level due to an insurable cause.

Catastrophic (CAT) crop insurance was introduced following the Federal Crop Insurance Reform Act of 1994. The CAT insurance guarantee level is 50 percent of expected yield. The fee can be waived for limited resource farms, which are defined by USDA's Federal Crop Insurance Corporation as having an annual gross income of less than $20,000 derived from all sources for the prior two years. The fee was waived on about 25,000 policies in 1995. Farmers can also "buy-up" to as much as 75% yield coverage, which requires additional payment.

One group of small farm operators has suggested changes to the federal crop insurance program. These farm opera-tors, mainly African-Americans farming in the Southeast, participated in workshops on crop insurance conducted by the Federation of Southern Cooperatives.

They completed a survey of their farm characteristics and risk management needs. Their suggestions included:

(1) increasing the coverage level of catastrophic crop insurance; (2) expanding crop insurance to include crops, particularly fruits and vegetables, for which insurance is not currently available; (3) insurance coverage for livestock; and (4) personal assistance in understanding insurance sign-up procedures and program provisions.

References

Dismukes, Robert; Joy Harwood, and Susan Bentley. Characteristics and Risk Management Needs of Limited Resource and Socially Disadvantaged Farmers. A Report to the Office of Risk Management, U.S. Department of Agriculture. Prepared by Economic Research Service, U.S. Department of Agriculture, February, 1996.

Kalbacher, Judith Z. and Susan E. Bentley. "Farm Operator Household Income Compares Favorably with All U.S. Households." Rural Conditions and Trends. Economic Research Service, U.S. Department of Agriculture. Vol. 6, No. 1. Spring 1995.

Previous Page
Next Page

Return to Table of Contents
Return to Title Page