Off-farm income important to farm families

LINCOLN, Neb. – It’s a stunning number.

The USDA recently estimated that 94 percent of the income for farm-operator households will come from off-farm sources this year.

In average dollar terms, that’s off-farm income of $63,635 out of total household income of $67,603.

Stated differently, the average farm family is forecast to receive only $3,968 from its farming operations in 2003.

And this comes in a year when farm incomes are expected to be about 50 percent higher than last year.

Wide gap. Averages, of course, mask wide variations among individual farm-operator households.

Differences fundamentally occur because of the size of the farm business and work/investment choices. USDA broadly categorizes farms three ways: rural residential, intermediate and commercial.

Rural residential farms. Operators of rural residential farms spend most of their work time off the farm. In fact, 80 percent of those in this group work full time at an off-farm job.

Others are retired and receive most of their income from passive sources, including Social Security. But they’re all still classified as farmers because they sell at least $1,000 worth of agricultural products annually.

More often than not, those in the rural residential group have net losses from farming. But they stay with it, mostly because they enjoy the rural lifestyle and earnings from other sources make it possible.

Perhaps surprisingly, average income for these households is a few thousand dollars higher than the overall farm-operator average.

Intermediate farms. The chief characteristic of the intermediate group is that, unlike rural residential farms, operators work mostly on the farm. However, the operator’s spouse often works off the farm.

Operators of these farms typically aspire to reach the status of full-size commercial farms.

Total annual income for the intermediate households averages about $40,000, below both the rural residential group and commercial farms.

Commercial farms. Commercial-farm households differ from rural residences and intermediate-size farms both in the amount of income and its sources.

Net farm income for commercial-farm operators is expected to be in the $75,000 range for 2003. Overall household income should approach $110,000.

Obviously, farm income dominates for these households, even though off-farm income is not insignificant.

Interpretation. Two important implications come from understanding differences among farms. First, off-farm employment at an attractive salary may be what rural residential farms need more than anything else.

Second, many intermediate farms want to increase overall profitability to the level of commercial farms.

But what the public role should be, if any, in helping them reach that objective remains elusive.

(The author is a public policy specialist in the department of agricultural economics at the University of Nebraska-Lincoln.)