Future of the Family Farm

My piece in Thursday’s Fin was about claims that the family farm is doomed. This is one of these notions that seems impossible to kill, having been around for decades, it looks as if it will outlast me. It seems to appeal to just about everybody. Sometimes its pushed by farmers who want more government aid. At the moment though, it’s mainly being run by economic rationalists who want to sweep away these small and allegedly inefficient operations.

For the last fifty years or so, farmers in Australia have been told to ‘get big or get out’. This advice, like so much in Australian intellectual fashion, was originally imported from the United States, where Secretary of Agriculture Ezra Taft Benson coined the phrase in the 1950s. It was itself a reaction to the failure of policies of closer settlement, represented in the US by the Homestead Act, and in Australia by the free selection movement and soldier settlement schemes, which had invariably underestimated the land required for a viable family farm.

The call to get small farmers off the land seems to have been revived recently, partly in response to the drought crisis and partly in response to the debate over the future of AWB and agricultural marketing. It’s increasingly being argued that small farms represent a burden on the community as a whole and a drag on our export performance. The future, it is claimed, belongs to large-scale corporate farms.

There is a grain of truth in all this. Thanks to technical progress, the area of land that can be operated by an individual farmer has increased steadily over time. As a result, the average size of farms has increased and the number of farms has decreased. This process has often been painful, though the high land prices now prevailing make it less so now than at most times in the past.

But much of the discussion reflects a misunderstating of the data. ABARE statistics show, for example, that a large proportion of agricultural output is now produced by farms with a value of $1 million dollars or more, mostly owned by companies. But in the great majority of cases, a visitor to one of these farms would find a farm family, living on and working their own land, perhaps with the help of one or two employees.

The company would turn out to be a closely-held ownership structure adopted for the purposes of tax minimization and family asset management. And the increase in farm value would be, in large measure, be the product of the asset price boom (or perhaps bubble) that has spread from the cities to the bush.

A smaller but important group of farms are valued in the tens of millions, and worked mainly by employees. But these are still family operations, usually with resident owners.

Even the genuine examples of corporate agriculture, like the Australian Agricultural Company, Cubbie Station and Heytesbury Beef mostly fall into the Small and Medium Enterprise class, covering firms between 50 and 500 employments. There is no evidence that large-scale corporate agriculture is on the horizon. Rather, the relative significance of corporations in agriculture is declining.

The case of Stanbroke Pastoral Company is striking. When Stanbroke was sold by its corporate owner, AMP, there was no suggestion that it would be swallowed by a larger corporation. Rather, despite strenuous efforts to preserve it, the company’s holdings were broken up and sold off to wealthy rural families.

The other misconception relates to statistics, such as those published by ABARE, showing large numbers of small farms with low output and low incomes and low rates of return. A casual reading of this evidence overlooks some crucial facts. The nature of family farms is such that business expenses and ordinary household expenses are lumped together to a large extent. This means that a low or even negative business income does not necessarily indicate a non-viable farm.

More importantly, a large proportion of small farms have access to off-farm employment income. Off-farm employment allows a family with limited capital to earn an adequate combined income without the investment outlay required for a farm large enough to provide full-time employment.

The prospects for off-farm employment are much greater in locations close to towns and cities, and land prices in these areas reflect their location. So small farms often appear to have low rates of return of capital. But careful study suggests that when appropriate account is taken of the possibility of off-farm employment, small farms are not, in general, less efficient than large ones.

The death of the family farm has regularly been predicted, and in some cases announced, ever since I can remember, and probably long before that. Yet family farms, small and large, produce the great majority of Australian agricultural output, and will continue to do so for decades to come.

John Quiggin is an ARC Federation Fellow in Economics and Political Science at the University of Queensland. He has worked on the economics of family farms since the 1970s.

30 thoughts on “Future of the Family Farm

  1. Tom, if you read my article on the topic (and for that matter C&H) you’ll see that “economic rationalist” is now mainly used, by both supporters and opponents to refer to a set of positions and styles of argument exemplified by C&H. It’s not the same as mainstream economics.

    In particular, economic rationalists are generally in favour of “rationalising” industries they regard as inefficient, without regard to adjustment costs and often without careful economic analysis. That’s the case here in my view.

  2. The case against AMP now before the courts – I read that Holmes a Court is about to appear.

    The case hasn’t been settle.ed unless this has happened very recently.

  3. Part of the problem is the term ‘family farm’ which romanticises what are, for the most part, land-based industrial enterprises owned by family businesses (just like McDonalds stores are mainly owned by family business franchisees). The non-regular labour hours involved in farming inevitably favour family member labour over wage-labour – which is an argument the Marxist Karl Kautsky first recognised in 1899. As technology and agri-business models have evolved, the cry of the ‘demise of the family farm’ has been regular, but John is correct to temper these claims. In any case, anyone who’s interested should check out (…wait for the self-promotion)an article on this in the latest (Jan 2007) issue of the Journal of Rural Studies by myself, David Burch and Geoff Lawrence. There, we use the term ‘family farm entrepreneurs’ to describe what we think is going on.

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