Apr 23, 2014
Home| Tools| Events| Blogs| Discussions Sign UpLogin

Behind Farm Policy: Income of Farm vs. Nonfarm Population

July 9, 2013
piggy bank savings money
  
 
 

Is a farm safety net needed? An ag economist examines the issue by comparing U.S. farm income to the rest of the country.

By Carl Zulauf, University of Illinois

This is the first in a series that will examine big picture issues that frame U.S. farm safety net policy. Impetus for the series is the recent rejection by the U.S. House of Representatives of the proposed 2013 farm bill. While spending on food nutrition programs was a key issue, both the proposed spending and structure of the farm safety net impacted at least some, maybe many, votes. Thus, the decision by the House of Representatives suggests the U.S. is now fully engaged in a major debate about the future of its farm safety net. These types of debates are more about the big policy picture than about specific policy parameters, such as the level of target prices. This post specifically examines the issue of farm income relative to the income for the rest of the U.S.

Historical Perspective

Average income of U.S. farm households has exceeded average income of all U.S. households every year since 1996, a full decade before the start of the recent farm prosperity (see Figure 1). Moreover, since 1972, income of farm households has exceeded income of all households in 67% of the years. The major exception is 1979 through 1984, a period that overlaps with the farm financial crisis. Note that farm household income is calculated using net farm income. For a more detailed discussion comparing U.S. farm household and all U.S. household income see the U.S. Department of Agriculture (USDA), Economic Research Service (ERS) website.

farm income 070713

Average household incomes can be compared back to 1960. In 1960, average farm household income was 65% of average U.S. household income. Thus, over the last half century, farm household income has increased substantially relative to income of U.S. households.

To obtain a longer historical perspective, two data series need to be spliced. Specifically, USDA, ERS published a comparison of per capita (per person) personal income from 1934 through 1983. This data also is presented in Figure 1. It is from the Economic Indicators of the Farm Sector: Income and Balance Sheet Statistics, 1983. Specifically, Figure 1 contains per person disposal personal income. Disposable income is total personal income minus personal current taxes. In 1934, per person disposable income of farms was 39% of U.S. per person disposable income. By 1983, the ratio was 69%. The ratio of farm household income to all U.S. household income usually exceeds the ratio of per person disposable income because farm households are larger on average than nonfarm households. Again, per capita farm income is calculated using net farm income.

Caution is always in order when conducting a comparison over time and when comparing across different data sets. Nevertheless, the trend is so strong that it is difficult to argue that farm income is not substantially higher relative to nonfarm income now than when farm programs began in 1933. This historical perspective is relevant for the current debate because farm programs were adopted in part as a response to the poverty of the U.S. farm population, which was 25% of U.S. population in 1930. Critics of farm policy commonly mention this historical change in relative economic status.

Role of Nonfarm Income

The increase in farm income relative to nonfarm income is the result of many factors, but two stand out. One is the increasing size of the farm production unit, which in turn is partially driven by technology. The second is the increasing role of nonfarm income (also referred to as off-farm income). Figure 2 is a companion to Figure 1, specifically presenting the ratio of the income of the farm population (or households) that comes from farm sources. Nonfarm income comes from varied sources. The majority are wages and salaries from off-farm jobs, followed by transfers, such as Social Security, and income from nonfarm businesses. Farm income provided over 60% of per capita income of the U.S. farm population in the 1940s and 1950s. In contrast, farm income has provided less than 15% of all income of farm households in recent years, even including the farm prosperity years since 2005.

farmincome2 070713

READ MORE
Previous 1 2 3 Next

See Comments


 
Log In or Sign Up to comment

COMMENTS (12 Comments)

savvy farm wife - SD
Wow... for a University-based article, I am NOT impressed with how the statistics were presented. It is simple common sense that someone who works longer hours/more days SHOULD have a greater income. I could verify that most farmers work well over 40 hrs/week (more like 75-90), plus many farm wives and children also work on the farm. The numbers should have been compared on a per-hours-worked basis. That would have been a consistent comparison. A farm is a FAMILY business, where everyone is expected to help, rather than the 'average US household', as the article alludes to, which covers the majority of folks who simply punch the clock for 40 hrs/wk. I challenge the author to re-calculate his figures based on per-hours-worked, and then publish the results. Shame on you -- you should have thought this through better before you went to print!
10:34 PM Jul 29th
 
savvy farm wife - SD
Wow... for a University-based article, I am NOT impressed with how the statistics were presented. It is simple common sense that someone who works longer hours/more days SHOULD have a greater income. I could verify that most farmers work well over 40 hrs/week (more like 75-90), plus many farm wives and children also work on the farm. The numbers should have been compared on a per-hours-worked basis. That would have been a consistent comparison. A farm is a FAMILY business, where everyone is expected to help, rather than the 'average US household', as the article alludes to, which covers the majority of folks who simply punch the clock for 40 hrs/wk. I challenge the author to re-calculate his figures based on per-hours-worked, and then publish the results. Shame on you -- you should have thought this through better before you went to print!
10:34 PM Jul 29th
 
savvy farm wife - SD
Wow... for being a University-based article, I am NOT impressed with how the comparison is shown. These statistics do not break income down on a per-hour-worked basis. It is simple common sense that if someone works longer hours/more days that they SHOULD have greater overall income. I could verify for you that most farmers work well over 40 hrs/week (more like 75-90), plus many wives and children work on the farm. It is a FAMILY business, whereas the 'average US household', as the article alludes to, covers the majority of folks who simply punch the clock. I challenge the author to re-figure his numbers on per hours worked basis, and then publish the results. Shame on you - you should have thought it through better!
10:27 PM Jul 29th
 
DON - DELPHI, IN
Most farmers did not inherit hundreds of acres to play with, very few in my area. The govt requires exports of ag products to be shipped on American flag ships, doubling the cost to the buyer and keeping your grocery bill down. I am all for doing away with all govt intervention and doing away with the entire Ag department, of which most is food snap and other poor relief programs. Remember when farmers make money the spend it in the community, the retailers are the ones who send it to China.
5:19 PM Jul 9th
 
DON - DELPHI, IN
Most farmers did not inherit hundreds of acres to play with, very few in my area. The govt requires exports of ag products to be shipped on American flag ships, doubling the cost to the buyer and keeping your grocery bill down. I am all for doing away with all govt intervention and doing away with the entire Ag department, of which most is food snap and other poor relief programs. Remember when farmers make money the spend it in the community, the retailers are the ones who send it to China.
5:19 PM Jul 9th
 
mps - Paris, TN
It is not about who gets the money, it is about where the money goes. The farm bill has two parts. SNAP and farm programs. SNAP pulls money to the urban areas, the farm programs pulls money to rural areas. It is about getting someone elected and has been for a long time. If it is a safety net, where are all the farmers today? If it is a safety net, why are people on SNAP for a life time. Where are the smart people to evaluate things?
4:30 PM Jul 9th
 
Harold Smith - IA
Oops, I also forgot to mention that for the most part people punching a clock 40 hours a week don't get direct payments, special tax breaks or insurance on their jobs (crop insurance) and the government doesn't mandate that their labor output be used up (i.e. corn ethanol) regardless of whether or not society needs it.
4:26 PM Jul 9th
 
Harold Smith - IA
Oops, I also forgot to mention that for the most part people punching a clock 40 hours a week don't get direct payments, special tax breaks or insurance on their jobs (crop insurance) and the government doesn't mandate that their labor output be used up (i.e. corn ethanol) regardless of whether or not society needs it.
4:26 PM Jul 9th
 
Harold Smith - IA
Actually Don, when it comes to farmers you get what you inherit for the most part or what you marry into. Most of the time the guys puching a clock 40 hours a week didn't inherit farmland from Mommy and Daddy or a landowning spouse. Put another way, I know many farmers that would be pumping gas at Swifty or working at McDonalds if Mommy and Daddy didn't given them hundreds of acres of land to play with. I respect hardworking people whether they have the resources to own land or not. If you compared farmers to people with over $1M the gap would narrow, but farmers would still show as rich because they are for the most part. That's why government subsidies for farmers is so incredibly ridiculous!
4:23 PM Jul 9th
 
Harold Smith - IA
Actually Don, when it comes to farmers you get what you inherit for the most part or what you marry into. Most of the time the guys puching a clock 40 hours a week didn't inherit farmland from Mommy and Daddy or a landowning spouse. Put another way, I know many farmers that would be pumping gas at Swifty or working at McDonalds if Mommy and Daddy didn't given them hundreds of acres of land to play with. I respect hardworking people whether they have the resources to own land or not. If you compared farmers to people with over $1M the gap would narrow, but farmers would still show as rich because they are for the most part. That's why government subsidies for farmers is so incredibly ridiculous!
4:23 PM Jul 9th
 



Name:

Comments:

Receive the latest news, information and commentary customized for you. Sign up to receive the AgWeb Daily eNewsletter today!.

 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions