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This glossary is intended to provide the user with a
working definition of the key terms and a better understanding
of how these concepts are applied in estimating farm household
income and wealth.
Farm
A farm is defined as any place from which $1,000 or more
of agricultural products were produced and sold, or normally
would have been sold, during the year. Since the
definition allows for farms to be included even if they
did not have at least $1,000 in sales, but normally
would have, a system is developed by USDA's National
Agricultural Statistics Service for determining when a
farm normally would have. These are called point
farms. If a place does not have $1,000 in sales, a "point
system" assigns dollar values for acres of various
crops and head of various livestock species to estimate
a normal level of sales. Point farms are farms with fewer
than $1,000 in sales but have points worth at least $1,000.
Point farms tend to be very small. Some, however, may
normally have large sales, but experience low sales in
a particular year due to bad weather, disease, changes
in marketing strategies, or other factors. For farms with
production contracts, the value of the commodities produced
is used, not the amount of the fees they receive. Changes
are made to the point system over time. For example, beginning
with the 1997 Census of Agriculture, operations receiving
$1,000 or more in Federal government payments were counted
as farms, even if they had no sales and otherwise lacked
the potential to have $1,000 or more in sales. And, for
2002, a farm that had $500 point value and $500 in government
payments is considered a farm. This would not have been
true for the 1997 census. The most recent Census of Agriculture
is for 2007 (USDA,
NASS. 2007 Census of Agriculture, United States, Summary
and State Data, Vol. 1, Geographic Area Series, Part 51,
February 2009  ).
More than one-quarter of farms have no sales in a typical
year, and at least another 30 percent have positive sales
of less than $10,000.
Farm Operator and Principal
Farm Operator
The farm operator is the person who runs the
farm, making the day-to-day management decisions. The
operator could be an owner, hired manager, cash tenant,
share tenant, and/or a partner. If land is rented or worked
on shares, the tenant or renter is the operator. In the
recent Census of Agriculture and in the Agricultural Resource
Management Survey (ARMS), information
is collected for up to three operators per farm. In the
case of multiple operators, the respondent for the farm
identifies who the principal farm operator is
during the data collection process.
Family Farm
The general concept of a family farm is one in which
ownership and control of the farm business is held by
a family of individuals related by blood, marriage, or
adoption. Family ties can and often do extend across households
and generations. Historically, it was not uncommon for
the family farm to provide all of the labor for the farm
and to own all of the land and capital of the farm. That
is no longer true today, although the extent to which
individual farms hire nonfamily labor, rent-in land or
other capital, or contract for various farm services varies
greatly across farms. In short, the organization of family
farms changes over time.
There is no hard-and-fast definition of a family farm,
unlike the farm definition. In its program of analyzing
the well-being of farm operator households using microdata,
the ERS definition of family farms has changed over time.
A preferred definition of a family farm would allow for
organizational changes in the way in which operators structure
their farm businesses as they respond to changes in technology,
the marketplace, and policies, but still capture the general
concept of a family farm in which a family unit maintains
majority control and ownership.
The current definition of a family farm, since 2005,
based on the Agricultural Resource Management Survey is
one in which the majority of the business is owned by
the operator and individuals related to the operator by
blood, marriage, or adoption, including relatives that
do not live in the operator household. Although the definition
of a family farm has changed somewhat over time, the share
of U.S. farms classified as family farms has changed little
since 1996, ranging from 97.1 to 98.3 percent of all farms
(see table).
Immediately prior to the implementation of the current
definition, all farms were family farms unless they were:
organized as cooperatives, organized as corporations with
the majority of shareholders not related (by blood, marriage,
or adoption) or operated by a hired manager. In 2004,
98 percent of farms were classified as family farms using
this definition with data from the Agricultural Resource
Management Survey (see Structure
and Finances of U.S. Farms, Family Farm Report, 2007 edition
for more information). When the family farm definition
was established using USDA's Farm Costs and Returns microdata
in 1988, all farms were defined to be family farms except
nonfamily corporations, cooperatives, or when the operator
reported not receiving any of the net income of the business.
At that time, 99 percent of farms were classified as family
farms (see The
Economic Well-Being of Farm Operator Households, 1988-90).
USDA microdata were first collected in 1984 on the Farm
Costs and Returns Survey and all farms were considered
to be family farms at that time, i.e., no distinction
was made between family and nonfamily farms.
For farms where there is more than one operator and the
multiple operators do not share a housing unit, detailed
household data and off-farm income are not collected for
the additional operators on either the Census of Agriculture
or the ARMS—household data is only collected for
a single principal operator. Hence, this data limitation
has the effect of undercounting the total number of family
farm households.
Farm Operator Household
Farm operator households are those who share dwelling
units with principal farm operators of family farms. Multiple
operators that do not share the same household operate
less than 10 percent of family farms. In this case, the
farm operator household population would include the households
of the principal farm operator, but not the households
of the other operator(s).
Farm Operator Household Income
The Agricultural Resource Management Survey (ARMS),
conducted by ERS and the National Agricultural Statistics
Service (NASS), provides the data necessary for estimating
operator households' income. The Current
Population Survey (CPS), conducted by the Bureau of
the Census, is the source of official U.S. household income
statistics. Thus, calculating an estimate of farm household
income from the ARMS that is consistent with CPS methodology
allows comparing income between farm operator households
and all U.S. households.
The CPS definition of self-employment income is net money
income from the operation of a business by a person on
his or her own account. CPS self-employment income includes
income received as cash, but excludes in-kind or nonmoney
receipts. The CPS definition departs from a strictly cash
concept by deducting depreciation, a noncash business
expense, from the income of self-employed people.
Total income for the farm operator household consists
of income from the farm business, income from other farming
activities, and income from earned and unearned off-farm
sources.
Household income from the farm business: Several
factors affect how much the household of the principal
operator earns from the farm business, including how many
households are associated with operating the farm, the
legal organization of the farm, and whether or not the
principal operator receives a wage or salary for operating
the farm.
- Some farms have multiple operators who do not share a single household; in such cases, household income is calculated only for the principal farm operator's household and includes only that household's share of farm business income.
- Also, if a farm is organized as a C-corporation, the
profit that the firm generates is retained by the business
until the business pays out those earnings in the form
of dividends. In 2006, for C-corporations, we include
the farm business dividends that the principal operator
household receives in household farm income. (The remaining
profit of C-corporations is retained by the farm business
or paid to other shareholders and is not reflected in the
principal farm operator household's income.) Prior to
2006, all of the profits generated by farm businesses
organized as C-corporations were included in farm household
income based on the share of business returns the principal
farm operator household reported as theirs.
- Operators of C- and S-corporations may also pay themselves a wage for operating the farm, and those payments are included both as an expense to the business and as income to the farm household when they are paid. Regardless of legal organization, wages and salaries paid by the farm business to household members other than the operator(s) are included in household income from the farm business.
Household income from other farming activities:
A household may earn income from more than one farm. The
other farming activities can include operating another
farm or renting out farmland from another farming operation
to another operator. Income from these sources is included
in the farm operator household's earnings from farming
activities.
It is important to note that the earnings of the operator
household from farming activities as defined in the USDA
measure is not a complete measure of the return provided
by the farm. It excludes nonmoney income, in particular,
the rental value of a farm-owned dwelling. In addition,
farm losses, or negative farm earnings, of the operator
household can reduce the income taxes paid on off-farm
sources of income. The measure also excludes increases
in inventories, which the household could potentially
sell for cash.
Household off-farm income: Off-farm income
can be classified as earned or unearned. Earned income
sources are those that require a household member to allocate
their labor or management time to the activity. This includes
wages and salaries and off-farm self-employment income.
Unearned income sources are passive or transfer income,
such as from interest, dividends, private pensions, Social
Security, veterans' benefits, and other public programs.
Farm Operator Household Wealth
Farm household wealth is derived from a variety of sources.
It ranges from physical assets of both the business and
household to various types of financial assets, all differing
in degree of liquidity, capital certainty, and visibility.
For example, wealth held in a bank account is highly liquid,
capital certain, and visible. In contrast, wealth held
in real estate is illiquid, or not readily available on
demand. Wealth not only reflects the collective value
of assets but also considers the business and consumer
debt of households.
Components of Farm Household Wealth
Farm Typology
| Farm
Types |
| Small family
farms
(gross sales less than $250,000)1 |
Large-scale
family farms
(gross sales of $250,000 or more) |
Rural-residence
family farms:
Retirement farms. Small farms
whose operators report they are retired.
Residential/lifestyle farms. Small
farms whose operators report a major occupation
other than farming.
Intermediate family farms:
Farming-occupation farms. Small
family farms whose operators report farming as their
major occupation.
- Low-sales farms. Gross sales
less than $100,000.
- High-sales farms. Gross sales
between $100,000 and $249,999.
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Commercial
family farms:
Large family farms. Gross sales
between $250,000 and $499,999.
Very large family farms. Gross
sales of $500,000 or more
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| Nonfamily
farms |
| Any farm not classified as a family
farm, that is, any farm for which the majority
of the farm business is not owned by individuals
related by blood, marriage, or adoption. |
| 1The National
Commission on Small Farms selected $250,000 in gross
sales as the cutoff between small and large-scale
farms.
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Collapsed Farm Typology
The collapsed farm typology combines the farm typology
groups into three categories:
Rural residence farms. Includes retirement and
residential lifestyle farms.
Intermediate farms. Small family farms whose
operators report farming as their major occupation.
Commercial farms. Includes large and very large
farms.
Commodity Specialization
A farm's commodity specialization is determined by the
one commodity or related group of commodities that makes
up at least 50 percent of the farm's total value of production.
This definition is consistent with the North American
Industry Classification System (NAICS). Sometimes a farm
does not have one commodity or one related group of commodities
that makes up 50 percent of the total value of production.
These farms have a mix of commodities, and are classified
as other crops or other livestock operations. Also, when
sample sizes are too small to report reliable statistics
for a particular commodity specialization, even if at
least 50 percent of the farms' value of production is
represented by one commodity or a related group of commodities,
they are included with the other crops or other livestock
categories.
Disposable Personal Income
of Farm and Nonfarm Residents
This is a longstanding statistical series that was published
by ERS and its predecessor USDA agencies in the Economic
Indicators of the Farm Sector series and the Farm
Income Situation series for many years. Both the
population and the income concept differ from the concepts
used today. Farm residents are those who live on farms
of 1 acre or more in rural areas, including hired workers
and all others living on these farms. It excludes the
households of operators who do not live on their farms.
The disposable personal income series is an after-tax
income that was estimated from sectorwide aggregate data.
It was based, in part, on the annual net farm income estimate
of the farm sector and various assumptions about how much
of that income farm residents received and how much off-farm
income farm residents received. Because the population
concept was outdated and the income estimate was constructed
using various assumptions rather than with observed data,
the series was discontinued. However, it remains important
as the only historical series that compares the well-being
of farm and nonfarm persons.
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