Recipient Organization
UNIV OF WISCONSIN
21 N PARK ST STE 6401
MADISON,WI 53715-1218
Performing Department
AGRICUTURAL & APPLIED ECONOMIC
Non Technical Summary
American farmers are dealing with falling income and rising debt. According to the U.S. Department of Agriculture (USDA), U.S. farm income dropped significantly in recent years, from a 2013 high of more than $120 billion to $88 billion in 2019. Over the same time period, expenses were rising and debt was growing: the farm sector's debt to asset ratio rose from 11.4 to 13.5. The challenges are particularly acute for small family farms, which comprise 90 percent of American farms and accrue gross cash farm income of $350,000 or less.Looking forward, American farmers are also likely to face ongoing, if not increasing, volatility. Commodity and food prices continue to fluctuate in unpredictable ways not least because of the COVID-19 pandemic. Moreover, there is uncertainty in trade partnerships, weather and climate, and fiscal appropriations. This volatility is especially challenging for small farms which have fewer capital assets to borrow against.We propose to study emerging opportunities for American farmers to diversify their revenue streams in this volatile economic environment. Under certain circumstances, farmers may be able to add supplementary income from the conservation and development of natural resources. For example, farmers have new opportunities to lease land for wind farms and electricity transmission lines. These opportunities are growing rapidly.This project will obtain rich data on recreation and transmission line leasing and thus can create a brand new data set that is useful for farmers and policy makers. It will deliver insights and strategies that could help meet the needs of small and medium-sized farmers if we find they cannot attract leasing opportunities available to large farmers because the costs of coordinating with a large number of small farmers exceeds the costs of coordinating with a small number of large farmers. In that case, small and medium-sized farmers would benefit from some of the policies we consider, e.g., helping small farmers pool together to jointly negotiate as one entity. The project may also deliver insights for socially disadvantaged farmers if we find that participation opportunities are particularly limited for this class of farmers. We understand that some farmers prefer not to participate in programs such as conservation easements, outdoor recreation leasing, wind energy leasing, and transmission line easements; our proposal is simply to help those small and medium sized farmers that do want to participate have further opportunities to do so.
Animal Health Component
(N/A)
Research Effort Categories
Basic
100%
Applied
(N/A)
Developmental
(N/A)
Goals / Objectives
Our research will focus on a key predicament facing small and medium-sized farms. On one hand, diversifying their income streams by participating in natural resource development or conservation projects may be critical for their business survival. On the other hand, small farmers are not well positioned to capitalize on these opportunities, which include leasing land for wind energy, transmission lines, or outdoor recreation and putting conservation easements on their land. This is because most projects of this type require a contiguous area of minimum size and therefore favor large farms. The overall objective of our project is to quantify the conditions under which small farm size is a barrier to supplementary sources of income and to identify approaches and policies that will help small farmers overcome the barriers. We will achieve this broad goal by pursuing a set of narrower of objectives:1) Develop economic theory to establish a coherent economic rationale for why resource developers and conservationists favor large farms over small farms.2) Quantify the effects of farm size on farmer participation in resource and conservation projects and isolate the extent to which the effects are driven by policy incentives versus economic fundamentals versus farmer preferences.3) Inventory incentives created by local, state, and federal policies that favor large farms for resource development and conservation, often indirectly and unintentionally.4) Describe new policies that could improve participation among small and medium-sized farms.
Project Methods
We will employ different methods to achieve each of the four objectives listed above. Each objective has a different type of output and, although we define the objectives separately, the individual objectives inform and feed into each other within the structure of our overall proposal. In what follows, we provide an overview of our approach using a separate sub-section for each objective. We then discuss more generally issues related to outcomes, how results will be used, potential pitfalls and limitations, and a timeline for our activities.Objective (1) - Design of Conceptual and Theoretical BasisOur theoretical framing will merge ideas from the literature on "economies of density" with ideas from the literature on transaction costs, contracting, and land assembly. We are concerned with natural resource and conservation uses that require a minimum contiguous area for successful utilization. These projects exhibit economies of density as described, for example, in Holmes and Lee (2012). The idea is that geography (i.e. spatial proximity and connectivity) matters for realizing economies of scale in production. For example, wind farming involves a combination of: i) high fixed costs of setting up production in a location, ii) high costs of moving equipment across locations, and iii) network infrastructure (e.g., transmission lines, roads) such that average infrastructure cost is minimized when production is spread over contiguous areas. Land uses such as outdoor recreation and wildlife conservation may also require a contiguous area of minimum size because the marginal recreational and ecological benefits are increasing in the amount of contiguous land dedicated to its use (Loomis 2002, McDonald et al. 2007).Objective (2) - Quantifying Effects of Farm Size on Farmer Participation We plan to estimate the effects of farm size on farmer participation in leasing land for wind turbines, transmission lines, conservation easements, and wildlife-recreation using two scales of empirical analysis: at the county level and at the level of individual land holdings. The county-level analysis will allow us to estimate the relationship between county-level average farm size and county-level participation for the universe of counties. The parcel-level analysis will allow us to estimate the relationship between parcel size and actual participation for a subset of counties.Objective (3) - Identifying Policy Incentives that Disfavor Small FarmersOur third objective is to identify policy incentives that may exacerbate the contracting disadvantages that small farms already face in being able to participate in resource and conservation projects. We will do through a comprehensive inventory of policies at the national, state, and local levels with regards to wind turbine setbacks, electricity transmission lines, conservation easements, and wildlife recreation. This inventory will focus on identifying explicit and implicit acreage requirements for farmer participation.Objective (4) -Increasing Opportunities for Small FarmersOur fourth objective is to consider how barriers could be removed so that small and medium sized farmers have more opportunities to participate in resource development and conservation projects if they choose. Some solutions might involve exempting small farmers from policies such as wind setbacks or amending tax policy to more directly benefit farmers with lower incomes. Other ideas would entail creating new policies to lower the costs of coordination among small farmers. Some more heavy-handed solutions could be created by adapting laws and procedures used for oil and gas leasing, such as forced pooling, that allow a project to happen without unanimous farmer consent.In considering potential solutions to the challenges of small and medium size farmer participation we will seek stakeholder participation. This will entail presenting our findings to farmer groups and soliciting their feedback about what, if anything, should be done. Talking to farmers will also give us a clearer picture of the costs and benefits to them of participating in these resource development and conservation projects. For example, small and medium size farmers may be more likely to live on their land and thus be adversely affected by noise from wind turbines. Or farmers might see being included in transmission line corridors as a misfortune rather than an opportunity for profit, perhaps because typical compensation is below the market value. Input from small and medium size farmers about these concerns will inform our research and policy recommendations.