Although production flexibility contract payments have been declining since 1996, other assistance has increased farm payments to their highest levels ever. As a result, all these payments are playing an increasingly critical role in supporting farmers, as evidenced by the fact that, in fiscal year 2000, the payments accounted for almost half of net farm income. For fiscal year 2000, USDA was authorized over $5 billion for these loans. Producers of wheat, feed grains, rice, cotton, and oilseeds have received most of the farm payments because the payments are generally based on the production of these crops. See appendix I for a more detailed discussion on defining farm size and additional analyses of the distribution of farm payments by (1) the number of farm acres operated, (2) the definition of small farms recommended by the National Commission on Small Farms, which was established by the Secretary of Agriculture in 1997 to examine the status of the nation’s small farms, (3) a new typology developed by USDA’s Economic Research Service that is based on a combination of gross agricultural sales and the occupation of the farm’s principal operator, and (4) individual recipients or payees rather than farming operation. The percentage of the farms receiving payments in all three of these size categories has increased since 1991, when about 60 percent of the large and medium farms and about 22 percent of the small farms received payments. In 1999, operators under age 35 received about 6 percent of the farm payments compared to 56 percent for operators that were 35 to 54 years old and 38 percent for those who were 55 or older. For the most part, farmers under age 35 appear to be in a financial position similar to other farmers. Although all states received some commodity payments for crop year 1999, six states—Iowa, Illinois, Texas, Kansas, Nebraska, and Minnesota— each received over a billion dollars in payments. For those who want to enter farming, the major obstacle is the cost of acquiring land, machinery, and other needed capital. Although farm program payments can help beginning farmers, the payments can also make it more difficult to get started because their value is reflected in a higher price for the farmland. Farm program payments are helpful to new farmers once they grow eligible crops. However, their share of the payments has been decreasing. Appendix II: Scope and Methodology

To determine the distribution of farm payments over the past decade by farm size, the age of farm operators, crop, and state, we analyzed data from USDA’s Agriculture Resource Management Study (ARMS) surveys (formerly the Farm Costs and Returns Surveys) and its Program Payments Reporting System (PPRS). To identify the major barriers that make it difficult for young people to enter farming, we reviewed available literature and interviewed knowledgeable Farm Service Agency and Economic Research Service officials.
Why GAO Did This Study

Payments to farmers under federal farm programs have reached an historic high--over $20 billion in fiscal year 2000. Nearly half of U.S. farms are receiving payments for income or price support purposes and/or for engaging in activities such as land conservation. These payments, in total, made up almost one-half of net farm income in fiscal year 2000. Despite the annual influx of billions of federal dollars to the farm sector, the U.S. Department of Agriculture (USDA) reports that the number of farms has been declining about one percent per year, with the most notable declines in small family farms and young farmers. GAO reviewed USDA's annual surveys of U.S. farm operations--called the Agricultural Resource Management Study--and state and crop information from its Program Payments Reporting System to (1) determine the distribution of farm payments over the past decade by farm size, operators' age, state, and crop and (2) identify the major barriers that make it difficult for young people to enter farming.

What GAO Found

GAO found that in recent years, over 80 percent of farm payments have been made to large- and medium-sized farms, while small farms have received less than 20 percent of the payments. Even though small farms substantially outnumber medium and large farms, because payments are generally based on volume of production, the average payment to small farms was much less than the average payment to medium and large farms. The distribution pattern for 1999 was similar to that of the other years during the past decade, but the portion of the payments going to large farms has increased and the portion going to small farms has decreased since 1996. Farmers under age 35 received about 6 percent of farm payments while farmers ages 35 through 54 received 56 percent of the payments. Farm payments are principally directed at producers of eight major crops: wheat, corn, barley, oats, sorghum, rice, cotton, and oilseeds,. All states received a portion of payments, but six states--Iowa, Illinois, Texas, Kansas, Nebraska, and Minnesota--together received almost half of the payments in 1999. The major obstacle facing young people who wish to enter farming is the high cost of acquiring the needed assets, principally farmland and farm machinery. Although farm program payments can help beginning farmers once they have started farming, the payments can also present a hurdle because their value is reflected in a higher price to buy or lease the farmland.