U.S. farm policy supports farm household income in part
by aligning government payments with (current and historic) production
of commodities like corn, wheat, rice, or cotton. When commodity
programs were conceived in the 1930s, government support was a key
component of farm income. As economic conditions changed over time,
however, commodity production has played a lesser role in farm household
income and well-being, while off-farm income has become more important,
a trend that has been documented in several ERS studies. One example
is a recent analysis of data on corn farms from USDA's 2001 Agricultural
Resource Management Survey. It shows that the relative importance
of the different components of farm household income varies by farm
type, but that off-farm income is most important for a majority
of farm households.
Rural residence farms (about 25 percent of farm households) had
little farm-related income and averaged a negative return from both
the farm and corn enterprise in 2001. Off-farm sources generated
nearly all of the household income (more than $50,000 per farm)
on these farms where operators, by definition, work primarily off-farm
or are retired.
Farm policy is more germane to farm household income on intermediate
(less than $250,000 in annual farm sales) and commercial ($250,000
or more) farms, where farming is the primary occupation. On intermediate
farms (about 50 percent of corn farm households), direct government
payments averaged about $8,000 per farm, accounting for nearly 90
percent of farm-related income. Still, more than 70 percent of total
household income on intermediate farms was generated from off-farm
sources.
By contrast, farming generated nearly 70 percent of total
household income on commercial corn farms (about 25 percent of corn
farms). More than $60,000 of household income (about $90,000 on
average) was from farm-related sources on commercial farms in 2001,
with about 40 percent of farm-related income from direct government
payments. The corn enterprise resulted in a loss, on average, of
about $6,000 per farm.
Low crop prices for corn and other crops grown on corn farms, along
with high costs for fuels and fertilizers, reduced commodity returns
in 2001. Government payments offset lower commodity returns to some
extent, and supported farm income on most farms. However, the large
discrepancy between farm and off-farm income on three-fourths of
corn farms suggests a loose connection between farm commodity returns
and household income for most corn farm households. This pattern
is likely to persist even when commodity returns are higher, as
they were in 2003 and 2004. The well-being of most farm households
now depends on economic conditions and opportunities off the farm
much more than on factors affecting the return to farming.
This article is drawn from...
Farm household, farm business, and corn cost and return
data collected in the 2001 Agricultural Resource Management Survey
(ARMS), in the ERS Briefing Room on ARMS.
Download PDF version