Are Bankruptcies Behind the Drop in Farm Numbers?

The number of farms in the United States has declined by two-thirds over the past seven decades, from a historic high of 6.8 million in 1935 to 2.2 million in 2002. While this decline is commonly associated with high rates of farm bankruptcy, a new study by ERS and the University of Arkansas finds the link between dwindling farm numbers and farm bankruptcies to be weak.

Farm bankruptcy rates spiked to unusually high levels twice during the past century. From 1920, with the post-World War I decline in the farm economy, through the Great Depression of the 1930s, farm bankruptcy rates were double to triple those of previous years and peaked at 13.7 per 10,000 farms in 1925. During that time, farmers had three bankruptcy options available to them. Fifty years later, during the farm financial crisis of the early to mid-1980s, farm numbers declined to about 2.3 million, and the rate of bankruptcy filings rose to 23.1 per 10,000 farms in 1987. By this time, a new bankruptcy category had been established by Congress and had become a frequently used option of farmers who declare bankruptcy.

Though comparisons of bankruptcy data across time are complicated by periods of incomplete data (there are no data from 1980 to 1986) and changes in the filing options available to farmers, comparisons of bankruptcy rates against data on farm numbers show no direct relationship. Most of the decline in farm numbers occurred between the 1940s and the 1970s, when bankruptcy filings were at relatively low levels and available filing options were stable. Farm numbers have even risen when bankruptcies have been relatively high or rising, such as during the early 1930s or the early 1990s. Not all bankruptcies result in farm exits, and most farm exits involve other factors, such as retirement. Bankruptcies are only one phenomenon within a broader set of changing economic circumstances—including rising agricultural productivity and expanding off-farm job opportunities—that influence the size and structure of the farm sector.