Study Explores Farm Management and Transition Decisions

Newswise — BROOKINGS, S.D. — Statistics tell a grim story about how difficult it is for one generation of farmers to pass the farm to a new generation: From 2002 to 2007, the number of operators aged 75 years and older increased by 20 percent, but the number of operators under 25 years of age decreased 30 percent.

South Dakota State University researchers Kuo-Liang "Matt" Chang and Soo Hyun Cho say those figures from the U.S. Department of Agriculture demonstrate why it is important to understand the factors driving management decisions — including the crucial decision to pass the farm operation to a younger generation.

Chang and Cho will study the issue this year with the help of a $20,000 grant from the Harms Fund for Excellence in Management, one of several donor-funded programs in economics and management that are taking shape as South Dakota State University’s Department of Economics responds to emerging needs in the state and regional economy.

“The continuous loss of younger population to urban areas has made farmers' managerial decisions and inter-generational transitions extremely difficult. The struggle to maintain daily farm operations with limited labor during the busy seasons considerably challenges the survival of the farm business,” Chang said. “We believe farm survival and farm family-to-work management are timely and urgent issues that deserve more attention both from academia and from politicians.”

He added that economists often study decisions to exit farming by using over-simplified economic theories and tend to forget the important human-side of the decision-making process. For example, efficiency theory that suggests the decrease of farm population is an inevitable result of technology advancement and falling farm income. But Chang believes that theory is too simple, failing to consider the deep attachment farmers feel for land. Chang believes that farm numbers would have declined even more than they have from the 1950s to the present if efficiency theory adequately explained the trend.

Similarly, Chang and Cho believe the exit barrier theory — the idea that it costs too much to quit — isn’t an adequate explanation for why some farm operations keep operating despite very low profits or even losses.

Instead Chang and Cho want to explore what is called life-cycle theory, which applies to all types of career change. They want to look at how that theory is applied in the larger context of farm families. Chang and Cho will conduct a two-year, multidisciplinary study regarding farmers' managerial decisions-making processes, the family-to-work labor/time arrangement, and inter-generation migration patterns.

Kuo-Liang “Matt” Chang is an assistant professor in SDSU’s Department of Economics. Soo Hyun Cho is an assistant professor in SDSU’s Department of Consumer Sciences.

By applying microlevel data from the U.S. Census Bureau’s Survey of Income and Program Participation, or SIPP, the researchers are able to identify challenges farmers face.

“Contrary to numerous neo-classical economic studies of farm survival that focus mainly on the perspective of production efficiency, this project emphasizes the role of family on farmer's managerial and career decision-making,” Cho said. “We are specifically interested in how family wealth, family financial arrangement, and family-to-work management affect farmers' labor participation, retirement decision, and migration (exit or entry) patterns.”

The project builds on a study that Chang and his colleagues did earlier that looked at health care as a factor in farmers’ decisions to exit the workforce. The study suggested that farmer’s health condition and access to health insurance have noticeably larger marginal impacts on farmers’ exit decisions than income and other socio-economic variables commonly considered by economists.

If a second phase of the study is funded in 2012, Chang and Cho want to look beyond financial capital to explore other factors that could be affecting farmers’ decisions. They want to pick up on the work of economists elsewhere and explore the roles of cultural capital (knowledge, know-how, norms, and experience), social capital (networks, social connection, and community), and symbolic capital (identity, tradition, pride, and spiritual connection) on such decisions.

“We want to emphasize the importance of emotional support gained from the family and the need for farmers to carry on the cultural and symbolic tradition to their children in the farm families' managerial and career decision-making process,” Chang said.

In addition to supporting Chang and Cho in their research, the Harms Fund for Excellence in Management — established by SDSU Department of Economics alumnus Duane Harms, president and owner of Brookings-based Harms Oil Co. — is also providing $15,000 for a separate project that prepares SDSU students as management interns to work on economic development issues in South Dakota Horizons Program communities. SDSU’s Department of Economics is supplying a matching contribution to each of the projects.