Kentucky Agriculture

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Agriculture remains a key and important component of the Kentucky economy and is currently the 18th largest industrial sector in the state. In 2008, agriculture contributed $2.38 billion to Kentucky's gross state product (GSP) and accounted for 1.5-percent of total GSP. As of 2008 the total number of acres in farmland was 14,000,000, which is approximately 55 percent of Kentucky's total land area.

Kentucky Farms

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Farms Over Time

Kentucky ranks 4th nationally in number of farms, even though the number has declined since 1980. The number of farms in the state has declined from 102,000 in 1980 to 85,000 today, while the average size of farms has slowly grown over this same time period. Kentucky's average farm size today is 164 acres, up from 143 acres in 1980. Although Kentucky farms are growing in size, the average size is only one-third of the U.S average.

Farms By Sales

Farms can be broken down into three classifications based on the sales that they generate annually: small farms, medium-sized farms, and large-scale farms. Small farms are those with less than $10,000 in sales, medium-sized farms have sales that range from $10,000 - $100,000 and large-scale farms are those with sales of greater than $100,000. Since 2003 the number of medium-sized and large-sized farms has grown while the number of small farms has declined. However, small farms still makeup 64-percent of the total number of farms, with approximately 54,000 small farms throughout the state.

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Production and Changing Structure of KY Agriculture

In terms of revenue generated, the top five agricultural products produced in Kentucky are horses/mules, broilers, corn, cattle and soybeans. Other notable agricultural products include: tobacco, dairy, hay, wheat, barley and sorghum. Over the last decade the structure of Kentucky agriculture has changed significantly with tobacco seeing its share of total cash receipts dwindle while broiler production has seen its share gain drastically. Historically, tobacco has been Kentucky's largest agricultural product in terms of cash receipts but it now only ranks as the state's sixth largest, due most notably to the Tobacco Buyout of 2004. Broiler production is the fastest growing production area of Kentucky's agricultural sector. The production value of broilers has increased almost 200-fold since 1985 ($745 million compared to $4 million). However, Kentucky is still the nation's second largest tobacco producer, trailing only North Carolina, and the nation's largest producer of Burley and Dark tobacco.

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U.S. Rank by Product

In terms of production, Kentucky ranks in the top-twenty nationally for six agricultural products, including tobacco and broilers at 2nd and 7th, respectively. Following these two products are hay (11th), cattle (13th), corn (14th) and soybeans (17th).

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Economic Importance of Agriculture

Economic Activity

Agriculture is the 18th largest sector of Kentucky's economy with farming activities (inputs, processing & forestry) accounting for 8.6-percent of Kentucky's total economic activity and 7.5-percent of Kentucky's jobs. If food retailing is included with farming activities then agriculture accounts for 11.9-percent of Kentucky's total economic activity and 15.5-percent of jobs.

Production Value

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The production value, in terms of cash receipts, for Kentucky's agricultural products has risen continuously since 1985 reaching an all-time high of $4.83 billion in 2008. Only ten states had a higher net farm income than Kentucky's net farm income of $2.03 billion in 2005.




Tobacco Buyout of 2004

Overview

The piece of legislation known as the tobacco quota buyout, terminated U.S. tobacco farm price support and domestic production controls (marketing quotas) after the 2004 crop year. Beginning with the 2005 crop, there were to be no restrictions on who could grow and market tobacco, where it could be grown, and the amount that could be grown and marketed. It also eliminated direct payments farmers had received from tobacco manufacturers as part of a settlement agreement they reached in litigation with states’ attorneys general called Phase II payments. Tobacco quota owners and active producers were to be paid $9.6 billion over 10 years, of which $2.5 billion was to be made in payments to Kentucky farmes, as compensation for lost rents and to aid in the transition to a free market system.

Payment Plan

The payment rate to quota owners, defined as the owner (as of October 22, 2004) of a farm with a basic tobacco marketing quota or tobacco acreage allotment for the 2004 marketing year, was $7/lb, the payment rate to active producers was $3/lb, based on 2002 basic and effective quotas. People who both owned quota and grew tobacco would get $10 a pound. Will Snell, a University of Kentucky tobacco economist, estimated that as many as 75 percent of current quota owners and growers would likely stop raising tobacco. As a result of tbe buyout, the number of farms growing tobacco declined from 29,000 in 2002 to only 8,113 in 2007.

Production Post-Buyout

Tobacco would continue being grown throughout the state because companies wanted to spread tobacco production to offset weather and disease risks. However, the majority of production would move to the lowest-cost regions - those where cropland availability is ample and where soils are the most productive. Consequently, more tobacco would now be grown in western Kentucky, while less was to be produced in eastern Kentucky. As expected, the top 7 value producing counties in the state are now in western Kentucky, whereas only one was prior to the buyout.

Top 7 value producing counties pre-buyout: 1. Barren 2. Shelby 3. Scott 4. Woodford 5. Fayette 6. Madison 7. Bourbon

Top 7 value producing counties post-buyout: 1. Graves 2. Calloway 3. Todd 4. Christian 5. Logan 6. Daviess 7. Barren

Agricultural Subsidies

An agricultural subsidy is a governmental subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities. The United States currently pays around $20 billion per year to farmers in direct subsidies as "farm income stabilization" via U.S. farm bills.
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Despite 65 percent of farmers in Kentucky not collecting subsidy payments in 2009, Kentucky still ranked 25th out of 50 states in total subsidy payments. USDA subsidies in Kentucky totaled $246 million in 2009 and $3.02 billion since 1995. Like most farm subsidies, the largest farms in Kentucky, according to sales, receive most of the payments. In 2009 alone the top 1 percent of farms collected 22 percent of the payments with an average payment of $66,000 per recepient. After the top 20 percent received 83 percent of the payments, the remaining 80 percent of farms were left to collect the remaining 17 percent. The remaining 80 percent received an average payment per recepient of $661. The outcome in 2009 is consistent with the average outcome over the last 15 years. Since 1995, farms in the top 10 percent have received an average subsidy payment of $7,500 per year while the bottom 80 percent's average subsidy payment is $98 per year.

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Corn subsidies account for the largest bulk of Kentucky's total subsidies in terms of dollar amounts and second largest in terms of the number of recipients. Since 1995, tobacco has had the highest number of recipients collecting subsidy payments by a wide margin.

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