Farmers’ financial well-being not as black and white as economists paint

WASHINGTON – The economic well-being of farm households is a recurring theme in farm policy, according to the USDA Economic Research Service.
But, an 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.
Data collecting. The Economic Research Service recently developed a composite measure of economic well-being that incorporates household income and an annuity based on the amount of marketable wealth held by the household.
While the use of composite measure of economic well-being is not new to economists or the service, the richness of data collected through the USDA’s Agricultural Resource Management Survey in recent years allows for a more comprehensive and robust measure of economic well-being.
The composite measure 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.
Income. 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, or 23 percent.
Patterns. These patterns indicate the importance to farm households of policies unrelated to agriculture, such as those encouraging sustained growth in the general economy and higher rates of savings.