The economic well-being
of farm households is a recurring theme
in farm policy, but accurate and objective
assessment of economic well-being is difficult
because income and wealth measures alone
provide an incomplete picture of the economic
position of the farming unit. Vagaries
of weather and the biological risks inherent
in agricultural production, for example,
contribute to variability in the income
of farm households. Similarly, some farm
business wealth (e.g., land, machinery,
and other capital assets) is not easily
converted into forms to support household
consumption in times of low incomes.
ERS has recently developed a composite
measure of economic well-being (CWB) that
incorporates household income and an annuity
based on the amount of marketable wealth
held by the household. While the use of
CWB is not new to economists or ERS, the
richness of data collected through the USDA's
Agricultural Resource Management Survey
(ARMS) in recent years allows for a more
comprehensive and robust measure of economic
well-being.
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The CWB indicator includes all household
income and the annualized value of the household's
marketable wealth, those household assets
that can be easily converted into cash to
support household consumption needs. Annuitized
marketable wealth excludes the primary income-producing
assets of the farm business, like land and
machinery.
The composite measure of economic
well-being is estimated at $86,386 for
the average farm household in 2003. Income
from farming comprised $7,383 (9 percent)
of the total. In contrast, income from
off-farm wages and salaries accounted for
$36,433 (42 percent) of the combined totals.
Income from all other off-farm sources
was $22,384 (26 percent), and marketable
wealth at $20,187 (23 percent). These patterns
indicate the importance to farm households
of policies unrelated to agriculture, such
as those that encourage sustained growth
in the general economy and higher rates
of savings.
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Adding
annuitized wealth to income lessens
the degree of inequality among households
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The distributions of income, the
composite measure of economic well-being,
and of the total net worth (i.e.,
from farm and nonfarm sources), based
on the concept of the Lorenz curve,
appear to be generally similar for
all farm households except for those
at the lower ends of the distributions.
The distribution of household income
is consistently less equal than the
distribution of net worth, and the
distribution of CWB lies between the
two. The evidence of greater equality
in the distribution of CWB compared
with income results from farm households
with negative or low income tending
to have, on average, positive net
worth. |
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Half
of all farm businesses did not make
a profit from farming in 2003
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Farm households in the lower half
of the CWB distribution earned negative
incomes from farming. Those in the
first decile of the CWB distribution
report that the combination of income
from off-farm sources along with annuitized
marketable wealth was not large enough
to offset losses from farming in 2003. |
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Sources
of economic well-being vary by farm
specialization
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In 2003, economic well-being of
farm households was highest for farm
households specializing in the production
of fruits, vegetables, and nursery
products. These farm household types
also averaged more income from farming
than all other farm types. In contrast,
the economic well-being of households
with livestock as their specialty
(with the exception of dairy producers)
was mainly comprised of off-farm income
and of annuitized farm and nonfarm
wealth. |
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Farm
households' economic well-being reaches
its peak as farmers get closer to
retirement
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The potential income stream from
marketable wealth accumulation was
an important component of the economic
well-being of all farm households
in 2003, especially for older farmers.
In contrast, income from off-farm
wages and salaries comprised the largest
portion of the composite measure of
well-being for farmers under 65. |
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