The loss of small farms in the South was dramatic from 1987 to 1997, with family farming becoming an increasingly rare phenomenon. Small farms are important to the local economic base. They purchase inputs locally, keep the tax base low, and reduce the need for public services. Diversity among farm managers is increasing in the South, with greater numbers of Hispanic and women farm operators. At the same time, only small increases are occurring in the number of African American farmers. Sustainable agriculture advocates have an interest in maintaining niches for small farms and in bringing young people into farming. They point out that well educated small-farm operators are more environmentally responsible. Policy issues include: a need to level the playing field for small farms by developing broad-based national agriculture policy, land use concerns, environmental protection and regulation enforcement, and alternative sources of capital and local financial markets. The major issues facing the small farm are economic--cash flow, income, asset development and protection, and return on investment. These issues must be addressed by federal, state, and local policy. Land grant universities need to commit research and educational resources to address the South's small farms issues. (Contains 14 references.) (TD)