Economic Well-Being of Farm Households

Carol A. Jones, Hisham El-Osta, and Robert Green

Farm subsidy programs in the 1930s were largely prompted by concern for the chronically low, and

highly variable, incomes of U.S. farm households. Seventy years later, commodity-based support

programs are still prominent, even though the income and wealth of the average farm household

now exceed those of the average nonfarm household—wealth by a large margin.

Farm households continue to face variability in income due to weather and natural disasters.

Household income is most variable for the small segment that operates commercial farms (above

$250,000 in annual sales). Relative to small farms, these farms achieve greater economies of scale,

generate higher profit margins, and their households realize a larger share of their income from

farming. However, the substantial net worth of these households acts as a cushion against uncertain farm income, much as off-farm income does for households operating smaller farms.

In a variable-income/high-wealth sector such as farming, economic well-being measures based on

both income and wealth can provide a better signal of household capacity to support a consistent

living standard than income measures alone. In 2003, 5 percent of farm households had both income

and wealth below the respective U.S. household medians, and those households, on average, spent

more on basic consumption than they earned in income. Households with low income and low

wealth are less likely to receive farm payments, excluding conservation programs; by contrast, only

3 percent of households receiving payments had income and wealth below the U.S. household

medians for each.
ECONOMIC BRIEF Economic Well-Being of Farm Households

UNITED STATES DEPARTMENT OF AGRICULTURE 2

Increasing Farm Household Participation in Off-Farm Employment 

and Investment is Key to Well-Being 

The average income of farm households increased from half of nonfarm household income (per capita)

in the 1930s to relative parity by the 1970s. In every year since 1996, average income for farm households

has exceeded the average U.S. household income by 5 to 17 percent. Today, the economic portfolios of

most farm operator households are highly diversified. Off-farm sources of income (including employment earnings, other business activities, other investments, and transfer payments) provided 85-95 percent of household income over 1999-2003, up from around 50 percent in 1960.

Operators of family farms in all sales classes had average household income exceeding the 2003 U.S. average for all households ($59,083). However, farm households are following diverse paths to economic wellbeing. Commercial farms (annual sales above $250,000, representing about 7 percent of U.S. farms) produce about 70 percent of total farm sales and have an average operating profit margin1 greater than 10

percent, with economic performance and farm share of household income increasing with farm size within the commercial segment (see Economic Brief No. 6, Growing Farm

Size and the Distribution of Farm Payments). Very large commercial

farms (sales greater than $500,000) average household income about

four times the U.S. household average. Though farm income provided 80 percent of household income for the average very large

commercial farm operator in 2003, off-farm income still contributed

around $44,033 per year.

Across all other sales classes, farms have negative farm operating

profits, on average, and their households draw most of their income

from off-farm sources. Farm operating profit margins become more

negative and shares of household income from farm sources

decrease as farm size diminishes. Households just below commercial

farms ($100,000-$249,999 in sales) represent 8 percent of U.S. farms

and produce 17 percent of sales. Their average household income

was $67,275 in 2003. The remaining 85 percent of farms produce

around 15 percent of sales, and earn negligible income from farming.

The operators of these smaller farms (particularly those with less

than $10,000 in sales) disproportionately identify their primary occupation as “other than farming or ranching” or as “retired.” The

“other occupation” group, who operate 42 percent of all farms, is

more integrated into the off-farm economy than the farmer/rancher

or the retired, and relies primarily on earned income (off-farm wages

and salaries and off-farm business income.) 

Farm Household Income is Most Variable for

Households with Highest Net Worth

Farm households as a group no longer experience chronically low

incomes relative to nonfarm households. On the other hand, farm

households do continue to experience more variable income from

year to year. However, it is the 7 percent of farm households operating commercial farms, who derive a majority of household income

from the farm, that experience the greatest degree of variability in

household income from year to year. The 8 percent of farm households operating the next size class of farms ($100,000-$249,999) also

experience variability in household income, though the effect is

dampened because about two-thirds of their income comes from offfarm activities.

1Operating profit refers to

net farm income plus interest

payments, minus the opportunity cost of operators’ unpaid

labor and management time.

Figure 1

Average household income for farm households compared 

with all U.S. households, 1960-2003 

Thousand dollars

Source: Various sources. For details, see www.ers.usda.gov/Briefing/

FarmStructure/Data/historic.htm 

Farm earnings of farm households

Off-farm income of farm households

Total income of farm households

Total income of all U.S. households

0

20

40

60

80

1960 68 76 84 92 2000

Figure 2

Share of farm households:

(100%) (58%) (27%) (8%) (4%)

Commercial farms

(3%)

Thousand dollars

All family

farms

Less than 

$10,000

$10,000-

$99,999

$100,000-

$249,999

$250,000-

$499,999

$500,000 

or more

Source: 2003 USDA Agricultural Resource Management Survey; 

Economic Research Service, USDA.

0

50

-50

100

150

200

250

Average household income varies by sales class of farm, 2003

Off-farm unearned income

Off-farm business income

Off-farm wages and salaries

Farm sources
Again, the households operating larger farms (sales greater than

$100,000) are the ones more likely to experience the effects on household income from variability in farm income: in 2003, around 13 percent of households operating larger farms had negative household

income, compared with 4 percent of households operating smaller

farms (fig. 3). In contrast, the likelihood of incurring losses from

farm operations is highest among the smaller farms (less than

$100,000 in sales). But these latter households acquire virtually all of

their income from off-farm sources, so negative farm earnings seldom translate into negative household income.

A Joint Income-Wealth Indicator is More

Indicative of Farm Household Well-Being 

In 2003, median wealth of farm households ($416,250) was five times

the estimated median wealth of all U.S. households ($89,578). (By

definition, 50 percent of households have wealth lower than the

median—also known as the 50th percentile—of wealth). Seventythree percent of farm household net worth is in farm equity (plus an

unknown share is in nonfarm business equity), whereas 17 percent of

the net worth of U.S. households is in business equity. Farmland,

which has appreciated greatly in recent years, particularly near urban

centers, currently represents about 60 percent of farm household

wealth. Excluding farm wealth, median nonfarm wealth of farm

households ($83,750) was almost as high as estimated median total

wealth of all U.S. households.

Gauging what share of farm households has low economic wellbeing is challenging, because farming is characterized by variable

income but also by high wealth. During periods of low income, farm

households may be able to maintain living standards by borrowing

against, or liquidating, assets. Consequently, household income for an

individual year, the standard measure of economic well-being, is not

necessarily a good indicator of a farm household’s ability to support

ECONOMIC BRIEF Economic Well-Being of Farm Households

3 ECONOMIC RESEARCH SERVICE

Figure 4

Average farm household net worth, by sales class, 2003

Share of farm households:

(100%) (58%) (27%) (8%) (4%)

Commercial farms

(3%)

Thousand dollars

Farm net worth

Off-farm net worth

0

500

1,000

1,500

2,000

All family

farms

Less than 

$10,000

$10,000-

$99,999

$100,000-

$249,999

$250,000-

$499,999

$500,000 

or more

Source: 2003 USDA Agricultural Resource Management Survey; 

Economic Research Service, USDA.

Within a given year, the variability of income across farm households tends to mirror that for all

U.S households. However, farm households tend to have lower incomes at the low end of the

income spectrum than nonfarm households, and higher incomes at the high end. The share

of farm households with negative household income was 6 percent in 2003, versus 1 percent

of all U.S. households. 

In contrast to all U.S. households, where wealth is highly concentrated at the top end of the

distribution, wealth is more equally distributed across farm households. Nonetheless, differences exist by farm size and by age/retirement status. Across size classes, the variation in farm

household wealth roughly mirrors the variation in income levels: farm net worth and, to some

extent, nonfarm net worth are higher for households operating

larger farms. So the larger farms can counter their greater

exposure to variable income with higher net worth – on

average in excess of $1 million, and closer to $2 million for

very large commercial farms. 

Distribution of Income and Wealth Across Farm Households

Figure 3

Share of farm households with negative farm income, by 

whether total household income is positive or negative, and 

by sales class, 2003

Percent

Share of farm households:

0

20

40

60

80

All family

farms

(100%) (58%) (27%) (8%) (4%)

Commercial farms

(3%)

Negative farm income, 

negative household income

Negative farm income, 

positive household income

Less than 

$10,000

$10,000-

$99,999

$100,000-

$249,999

$250,000-

$499,999

$500,000 

or more

Source: 2003 USDA Agricultural Resource Management Survey; 

Economic Research Service, USDA.
Economic Well-Being of Farm Households

UNITED STATES DEPARTMENT OF AGRICULTURE

ECONOMIC BRIEF

4

a given consumption level

through time. And wealth is particularly important for the retired

and near-retired, who may be

drawing down wealth accumulated over their lifetime, rather than

spending current income, to

support their standard of living.

To create a well-being indicator

that accounts for both income

and wealth, we separate farm

households by low and high

income and low and high

wealth, using the U.S. household

medians for income and wealth

as the dividing lines. By definition, 50 percent of U.S. households had income greater than

the U.S. median income ($43,378) in 2003. In contrast, 54 percent of farm households had income

greater than that level in 2003. However, the big difference is in the distribution of wealth across the

groups: 92 percent of all farm households—in contrast to 50 percent of all U.S. households—had wealth

greater than the U.S. median (estimated to be $89,578 in 2003).

So who is in the small group of low-wealth households? On average, the low-wealth group was younger

(virtually none was retired), operated substantially fewer acres, and generated lower farm sales than the

farm operator population as a whole. They reported substantial losses in the off-farm component of

household wealth. Among low-wealth households, a major factor differentiating the high-income subgroup (3 percent of total households) from their low-income counterparts (5 percent of total households)

is occupation: their primary occupation is disproportionately “other than farming/ranching,” whereas the

low-income group was more evenly split between operators declaring farming/ranching or “other” as

their primary occupation.

Do households with variable income have sufficient equity to borrow against, or to liquidate, to maintain living standards when income is low? Among farm households with income lower than the U.S.

median (46 percent), household wealth exceeded the U.S. median in 9 out of 10 households. Retired

households are disproportionately represented in this low-income/high-wealth subgroup. Even in the

low-wealth group, basic consumption expenditures exceeded income, though to a lesser extent than for

the high-wealth group.

Farm Households that Receive Commodity Payments 

also Have High Incomes and Wealth 

About 32 percent of all farm households receive farm program payments, excluding environmental payments (such as those received under the Conservation Reserve Program and the Environmental Quality

Incentives Program.) The share is lowest (12 percent) for households operating the smallest farms (sales

less than $10,000); over 50 percent of households operating farms in each of the larger size classes

receive payments. The high-income high-wealth group is more likely to be receiving program payments

(34 percent) than the low-income, low-wealth group (18 percent). Among recipients, payment levels

increase with production levels, and so payments disproportionately go to farm households operating

larger farms, with their higher average incomes and wealth.

THE U.S. DEPARTMENT OF AGRICULTURE IS AN EQUAL OPPORTUNITY PROVIDER AND EMPLOYER

For more information, see www.ers.usda.gov/abouters/privacy.htm

Data on farms and farm

operator households are

from USDA’s Agricultural

Resource Management

Survey (ARMS). Income

data for all U.S. households are from the U.S.

Census Bureau’s Current

Population Reports, Series

P-60. Wealth data for all

U.S. households are

derived from the Federal

Reserve Board’s Survey of

Consumer Finances (SCF).

SCF data are collected

once every 3 years, and

the most recent data

available are from 2001.

To provide a point of

comparison with farm

operator wealth in 2003,

we estimated median

wealth levels. 

How We Developed 

the Data in this Brief

Figure 5

Average farm household income and expenditures by 

relative economic well-being group, 2003 

Share of farm households:

(5%) (41%) (3%) (51%)

Total household income Household expenditures

$0

$25,000

$50,000

$75,000

$100,000

$125,000

Low income/

low wealth

Low income/

high wealth

High income/

low wealth

High income/

high wealth

Source: 2003 USDA Agricultural Resource Management Survey; 

Economic Research Service, USDA.

Ted Covey, Robert Green et al.,

Agricultural Income and Finance

Outlook, AIS-83, 45 pp,

November 2005.

David E. Banker and James M.

MacDonald, editors, Structural

and Financial Characteristics of

U.S. Farms: 2004 Family Farm

Report, Agriculture Information

Bulletin No. 797, 95 pp,

March 2005

James MacDonald, Robert

Hoppe, and David Banker,

Growing Farm Size and the

Distribution of Farm Payments, U.S.

Dept. Agr., Econ. Res. Serv.,

EB-6, March 2006.

This brief is drawn from . . .