United States 

Department of 

Agriculture

Economic

Research

Service

Economic

Information

Bulletin

Number 101

October 2012

Multi-Enterprising Farm Households:

The Importance of Their Alternative 

Business Ventures in the 

Rural Economy

Stephen Vogel
www.ers.usda.gov

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Recommended citation format for this publication:

Vogel, Stephen. Multi-Enterprising Farm Households: The Importance of 

Their Alternative Business Ventures in the Rural Economy, EIB-101, U.S. 

Department of Agriculture, Economic Research Service, October 2012.
United States

Department

of Agriculture

www.ers.usda.gov

A Report from the Economic Research Service

Abstract

Almost a third of U.S. farm households generate income by engaging in business 

ventures independent of commodity production, with distinctly different community and 

household benefits. In 2007, 686,600 farm households engaged in 791,000 income-generating activities distinct from commodity production, creating $26.7 billion in household 

income. Onfarm diversification activities like agritourism and off-farm business ventures 

each accounted for about half of these activities, but off-farm businesses generated about 

80 percent of total alternative (i.e., noncommodity) business income earned by farm 

households, creating the largest impact on the local economy. Off-farm businesses operated by farm households contributed an estimated $54.6 billion in value-added income to 

the gross regional products of their local economies and paid out $24.5 billion in wages 

and salaries to 853,100 part-time and full-time employees. In general, the share of the 

local employment base accounted for by farmer-owned off-farm businesses was higher in 

more rural counties.

Keywords: onfarm diversification, off-farm businesses, portfolio entrepreneur, farm 

household typology, nonfarm employment, direct sales

Acknowledgments

Danny Klinefelter (Texas A&M University), Patrick Sullivan (Economic Research 

Service), and two anonymous reviewers provided valuable comments and suggestions, 

while Angela Anderson and Cynthia A. Ray provided editorial and design support.

Stephen Vogel

Multi-Enterprising Farm 

Households: The Importance 

of Their Alternative Business 

Ventures in the Rural Economy

Economic

Information 

Bulletin

Number 101

October 2012
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Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction: Why Are Multi-Enterprising Farmers Important? . . . . . 1

The Multi-Enterprising Farmer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

The Importance of Alternative Business Ventures for Small 

and Large Family Farms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Multi-Enterprising Farmers and Occupational Mobility . . . . . . . . . . . . . 8

The Scope and Complexity of Onfarm Diversification . . . . . . . . . . . . . 10

The Uniqueness of Portfolio Entrepreneurs and Their Importance 

to the Rural Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

The Industrial Structure of Off-Farm Businesses . . . . . . . . . . . . . . . . . 16

Off-Farm Businesses as Crucial Linkages in the Rural Economy . . . . 19

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Appendix: Estimating Sales, Value-Added Income, and 

Labor Income Generated by Off-Farm Businesses . . . . . . . . . . . . . . . . 28
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Summary

What Is the Issue?

Farm operators and their households have a choice in how their entrepreneurial and managerial skills are used to earn business income. They can 

focus on traditional commodity production, use farm resources to produce 

other (noncommodity) goods and services, or operate an off-farm business 

in addition to their onfarm activities. Close to a third of U.S. farm households generate income by engaging in off-farm business ventures and onfarm 

activities independent of commodity production. The latter, referred to as 

onfarm diversification activities, range from operating agritourism ventures 

to supplying forest products to selling output at farmers’ markets. Farm operators also may own off-farm businesses, which face fluctuating conditions in 

the economy. Average off-farm business income earned by farm households 

was $63,800 in 2001, peaked at $76,800 in 2006, and fell to $42,700 in 2008.

What Did the Study Find?

In 2007, close to a third of all U.S. farm households—or 686,600 farm 

households—engaged in 791,000 income-generating activities distinct from 

commodity production, creating $26.7 billion in household income. Onfarm 

diversification activities and off-farm business ventures each accounted for 

about half of these income-generating activities, but off-farm businesses had 

the largest impact on the local economy by generating about 80 percent of 

total noncommodity business income earned by farm households. 

The farms operated by households engaged in alternative (i.e., noncommodity) entrepreneurial activities produced almost 40 percent of the total 

value of U.S. agricultural production in 2007. This suggests that households 

associated with farms of all sizes engage in alternative entrepreneurial activities, not just those associated with “part-time” or “hobby” farms. 

Over 290,000 farm households engaged only in onfarm diversification activities in 2007, earning approximately $14,400 per farm from these activities. 

Custom work, direct-to-consumer sales of local foods, and agritourism 

activities like pick-your-own operations accounted for almost 90 percent of 

the total amount of income earned from onfarm diversification activities. 

The type of commodities grown on the farm and the farm’s location relative 

to urban markets influenced participation in these activities. Farm households engaged in onfarm diversification devoted almost 50 percent more 

operator work time to the farm than did farm households not engaged in such 

activities.

Onfarm diversifying households tended to operate larger farms, averaging 

over 660 acres, and were twice the average size of farms not engaged in any 

alternative entrepreneurial activity. Farm households engaged in onfarm 

diversification appeared to use their larger physical asset base more intensively to support their onfarm business ventures.
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In 2007, 395,600 U.S. farm households operated an off-farm business. Multienterprise farm households typically earn incomes above those of farm households not engaged in these activities; portfolio entrepreneur households—those 

operating off-farm businesses in addition to their farms—earned incomes 

($140,200 per year) nearly twice the average for farm households not engaged 

in alternative income-generating business activities ($72,610) in 2007. 

Off-farm businesses operated by farm households generate strong links to the 

nonfarm economy. In 2007, off-farm businesses generated $21.6 billion in 

profits based on estimated sales of $111.6 billion, contributed an estimated 

$54.6 billion in value-added income to the gross regional products of their 

local economies, and paid out $24.5 billion in wages and salaries to 853,100 

part-time and full-time employees. Excluding sole proprietors, off-farm businesses employed six workers, on average, from local nonfarm labor markets. 

The share of a nonmetro county’s employed labor force linked to farm household-operated businesses increases at greater distances from an urban core. 

In 2007, jobs directly linked to such off-farm businesses accounted for 0.2 

percent of the employed labor force in metro counties, 1.6 percent in micropolitan counties (urban populations of 10,000-50,000), and almost 2.4 percent 

of employment in noncore counties (urban centers of less than 10,000). 

How Was the Study Conducted?

Most of the data in this report came from the 2007 Agricultural Resource 

Management Survey (ARMS), which was supplemented with data from 

earlier and subsequent ARMS, and from the 2007 Census of Agriculture. The 

2007 ARMS data were the most current data available when this research 

was initiated. In addition, 2007 was the most recent data that realistically 

could portray pre-Great Recession economic conditions while not being 

dominated by the economic bubble leading up to the recession. ARMS is 

a detailed, annual survey of farm businesses and associated households 

conducted jointly by the U.S. Department of Agriculture’s Economic 

Research Service (ERS) and National Agricultural Statistics Service (NASS). 

This report also uses the direct coefficients of the 2002 benchmark inputoutput tables published by the U.S. Department of Commerce’s Bureau of 

Economic Analysis. 
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Introduction: Why Are Multi-Enterprising 

Farmers Important?

Historically, many U.S. farm households have engaged in other incomegenerating activities independent of commodity production to support their 

lifestyles and to help maintain the economic viability of their farm operations. Full-time farming has long been the exception rather than the rule; 

most U.S. farm operators have supplemented farm income by working off the 

farm (Fuller, 1991).1 Almost 75 percent of U.S. farm households currently 

have at least one member working in an off-farm job. Multiple jobholding, 

particularly among small farm operators, is not transitional, but represents a 

stable path of income generation compatible with the household’s choice to 

combine rural and farming lifestyles (Bartlett, 1986). 

Another important income-generating activity available to the farm household is to operate a business venture separate from commodity production. 

About a third of U.S. farm households earn business income by doing so. 

These business ventures are classified into two broad categories distinguished 

by the degree to which farm resources are employed or leveraged. 

•	Onfarm diversification: a form of joint production that extends incomegenerating farm activities from simple crop production to monetizing 

the value of amenities and other attributes of farmland resources and 

lifestyles. These activities range from supplying forest products to operating agritourism ventures to selling output at farmers’ markets. (See 

box, “Measuring Farmer Participation and Income from Alternative 

Entrepreneurial Activities” for a description of the onfarm diversification 

activities discussed in this report.) 

•	Portfolio entrepreneurs: farm households operating off-farm businesses 

in other sectors of their local economy.2

The term “multi-enterprising farm household” refers to farm operators or 

other members of the farm household who operate business ventures in one or 

both of these two categories. Data from Phase III of the Agricultural Resource 

Management Survey (ARMS) sheds light on the scope and complexity of 

these noncommodity enterprises and the farm households that engage in them.

How Community Linkages Created by Multi-Enterprising 

Farm Households Differ From Other Farm-Based Linkages

Traditionally, the types of farm households and the size and structure of their 

farm operations have defined the extent and magnitude of the economic relationships between farmers and their local communities. More recently, farm 

and farm household activities have been recognized as being more complex, 

whereby farm production, farm household consumption, and all household 

income-earning activities generate distinct footprints in the local economy 

(Johnson et al., 2008). Three earned income sources—commodity production, off-farm employment, and alternative business ventures—engender 

unique community linkages, particularly because the community impacts of 

noncommodity business ventures differ from those generated by commodity 

production or off-farm employment. 

1Chayanov (1926) first described 

peasant households in early 20th century Russia moving in and out of labor 

markets while continuing to farm. Hill’s 

(1982) historical account of supplementary farm incomes in the United 

Kingdom also finds this to be the case. 

2Simultaneously operating two or 

more distinct businesses classify these 

farmers as “portfolio entrepreneurs” 

in the economics literature on small 

businesses. Carter (1996, 1998, 1999) 

and Alsos and Carter (2007) identified 

“portfolio entrepreneurship” among 

farm households in British and Norwegian case studies. 
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Measuring Farmer Participation and Income 

From Alternative Entrepreneurial Activities 

On-farm diversification is a term first used in European case studies documenting how farmers use farm resources to develop new ventures that 

generate additional farm income (Gasson, 1988; Ilbery, 1991; Shucksmith, 1993). Farm-level economies of scope permit farmers to develop 

these alternative onfarm activities independent of commodity production. 

The 2007 Agricultural Resource Management Survey (ARMS)—administered annually by ERS and the National Agricultural Statistics Service 

(NASS)—asked farmers to report income from farm-related sources, 

including Government program payments, crop and livestock insurance 

payments, proceeds from the sales of farmland, other farm real estate, and 

capital equipment, as well as income from alternative onfarm ventures. 

For our purposes, those activities include:

•	Custom work—farmers rent out their technical skills and farm equipment to other farm operations;

•	Agritourism—guided farm or ranch tours and other entertainment

services, hospitality services, and outdoor recreation (e.g., hunting, 

fishing, and bird watching);

•	Sale of forest products, such as firewood and timber;

•	Direct-to-consumer sales of food commodities—sales through

farmers markets, onfarm stores, roadside stands, and pick-your-own 

operations;

•	Sale of value-added goods produced on the farm, such as jellies and

jams, sauces, and other prepared items; and 

•	Sale of food commodities through community-supported agriculture

(CSA) buying clubs—a marketing arrangement in which a group of 

households agree to purchase shares of a farmer’s expected yield 

before planting; the up-front cash payments allow the farmer to buy 

inputs and share the output and yield risks with CSA members. These 

arrangements are also referred to as “subscription agriculture.”

If farmers undertake any of these onfarm diversification activities as part 

of their farm business, ARMS collects information on the income earned 

from each activity. If these activities are undertaken by the farm household as part of a separate off-farm business, however, detailed information is not collected but aggregate information is requested on off-farm 

business income. Since 2005, ARMS questionnaires have asked farmers 

to report the industrial classification of any off-farm businesses they operate. Farmers chose among 10 industrial categories that include agriculture 

and other resource industries, construction, manufacturing, and 7 servicesector categories. Since 2006, farmers have also been asked to report how 

many employees worked in their off-farm businesses.
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Commodity production generates demand for farm inputs, as well as largescale processing and marketing channels for farm output. These demands are 

supplied by a local or regional set of agriculturally related industries. For the 

first 60 years of the 20th century, these economic relationships formed the 

core of many rural communities’ economic bases. As production agriculture 

has became more concentrated among fewer farmers over the last 50 years, 

however, these local economic linkages have been weakened as farmers 

increasingly bypassed local suppliers to purchase inputs (Stenberg et al., 2009).

Over this same period, many rural communities found new sources of 

economic growth by developing nonfarm business sectors. Today, the manufacturing, Government, and service sectors (or a mixture of all three) account 

for the largest share of the economic bases of all but the most agriculturally 

oriented rural communities.3 This economic diversification has created more 

off-farm employment opportunities such that the average farm household’s 

prosperity now depends more on the state of the local economy than on farm 

production. This dependence is captured in the often cited aphorism, “The 

rural economy is more important to farmers than farmers are to the rural 

economy” (Irwin et al., 2010).

In contrast, multi-enterprising farmers create important but different benefits 

for the local economy. Onfarm diversification ventures, such as farm recreation, farm stores, and pick-your-own-produce, attract visitors’ dollars to the 

local community (Brown and Reeder, 2007). Off-farm businesses operated 

by farm households contribute directly to the local community’s nonfarm 

economic base by employing workers from the local labor force and by 

increasing the community’s stock of physical wealth.

3Since first elucidated by Lewis 

(1954), the distinction between farm 

and nonfarm economic activities has 

always been central to theories of 

economic development. Hirschman 

(1958) used this dichotomy to suggest that developing countries import 

whole industries because agriculture’s 

linkages were too weak. Jacobs (1984) 

stressed that in developed countries 

the urban core needed an integrated, 

diversified rural economy for the 

overall regional economy to thrive. The 

changing foci and complexity of U.S. 

rural development strategies over the 

last few decades are summarized by 

Irwin and others (2010). These strategies mirror the cross-currents facing 

those rural communities in which links 

to agriculture no longer dominate and 

whose economies have become more 

integrated into their broader regional 

economies or have remained stagnant.
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The Multi-Enterprising Farmer

In 2007, farm households engaged in 791,000 distinct alternative (to farm 

commodity-based) entrepreneurial ventures that generated an additional 

$26.7 billion in household income. Onfarm diversification and off-farm business ventures each accounted for about half of these activities, but off-farm 

business ventures generated more than 80 percent of the multi-enterprise, 

noncommodity business income accruing to farm households (fig. 1). 

In 2007, close to a third of all U.S. farm households—or 686,600 farm 

households—were engaged in alternative entrepreneurial activities (table 1). 

The farms operated by these households produced almost 40 percent of the 

total value of U.S. agricultural production, suggesting that households associated with farms of all sizes engage in alternative entrepreneurial activities, 

not just those associated with “part-time” or “hobby” farms. Over 290,000 

multi-enterprising farm households engaged only in onfarm diversification activities, earning approximately $14,400 per household from these 

activities. Onfarm diversifying households tended to operate larger farms, 

averaging over 660 acres, and were twice the average size of the farms not 

engaged in any alternative entrepreneurial activity. Farm households engaged 

in onfarm diversification appeared to use their larger physical asset base 

more intensively to support their onfarm business ventures, confirming the 

findings by Gasson (1988), Ilbery (1991), and Shucksmith (1993) that onfarm 

entrepreneurial ventures were positively related to farm size. 

In 2007, 395,600 farm households were classified as portfolio entrepreneurs operating off-farm businesses (table 1). Although multi-enterprising 

farm households typically earned incomes above those of farm households 

not engaged in these activities, portfolio entrepreneur households earned 
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the highest household incomes at $140,200 per year, on average. Portfolio 

entrepreneurs generated $54,650 in income from their off-farm businesses. 

Fourteen percent of farm portfolio entrepreneurs also operated an onfarm 

diversification venture, earning an additional $16,200 per year, on average.

Multi-enterprising households differ in terms of the operator’s years of experience working the farm and time committed to the farm operation. Portfolio 

entrepreneurs averaged almost 4 years less farm operator experience than 

other farm operators (table 1). As measured by full-time equivalent (FTE) 

employment, farm households engaged in onfarm diversification devoted 

almost 50 percent more operator work time to the farm,4 or an average of 

1.4 FTEs, while farm households not engaged in such activities and portfolio 

entrepreneur farm households typically committed approximately 0.9 FTEs 

to the farm operation. This labor intensity includes the number of hours 

worked by all operators involved in running the farm business. 

If 347,900 farm households engaged in 395,000 onfarm diversification activities, then some farm households engaged in more than one type of onfarm 

venture (table 1). About 12 percent of farm households participated in two 

or more onfarm ventures. About 16 percent of farm portfolio entrepreneurs 

4One full-time equivalent (FTE) job 

is equal to 2,000 hours or 50 weeks of 

full-time work annually.

Table 1

Characteristics of multi-enterprising farm households, 2007

Multi-enterprising farmers

Basic characteristics

Commodity-oriented 

producers 

Onfarm 

diversification 

Operate another 

business All farms

Number of operator households 1,467,503 291,047 395,583 2,154,133

Percent of total 68.1 13.5 18.4 100.0

Average acres operated 318 664 388 378

Value of farm production ($ millions) 147,835 56,150 39,857 243,842

 Percent of total 60.6 23.0 16.3 100.0

Dollars

Average household income 72,610 74,807 140,218 85,325

 Average multi-enterprise income – 14,401 57,025 38,800

 Average onfarm diversification income* – 14,401 16,212 14,694

 Average off-farm business income* – – 54,651 54,651

Years of experience as an operator 26.3 27.0 22.5 25.7

Full-time equivalent operator jobs per farm 

(total operator hours/2000) 0.9 1.4 0.8 1.0

Number of farm households engaged in onfarm diversification activities – 291,047 56,841 347,888

Number of onfarm activities – 327,556 67,410 394,966

Percent of multi-enterprising farm households 

engaged in:

 One onfarm activity – 88.3 83.6 87.6

 Two or more onfarm activities – 11.7 16.4 12.4

– denotes zero observations or not applicable.

* Average income based on farm households engaged in the activity.

Note: Data do not include nonfamily farms.

Source: USDA’s Economic Research Service and National Agricultural Statistics Service, 2007 Agricultural Resource Management Survey 

(ARMS) data. 
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engaged in more than one onfarm diversification activity—a larger share than 

for farm households pursuing only onfarm diversification.

The Importance of Alternative Business Ventures 

for Small and Large Family Farms 

According to the 2007 ARMS, multi-enterprising farm households operated 

all types and sizes of farm businesses, but participation in onfarm and offfarm activities varied by farm type (see box, “ERS Farm Categories” for a 

description of the farm types discussed in this report). Sixty percent of multienterprising farm households operated rural residence farms, 28 percent operated intermediate farms, and only 12 percent operated a commercial family 

farm with gross sales of $250,000 or more (fig. 2). 

Even though multi-enterprising farm households operating rural residence 

farms were the most numerous, participation rates were higher among households operating intermediate and commercial farms (fig. 2). Twenty-nine 

percent of all rural residence farm households engaged in multiple enterprises, compared with 37 percent of intermediate and 40 percent of commercial farm households. Intermediate farm operators were nearly twice as likely 

and commercial farm operators were nearly three times as likely as rural residence farm operators to engage in onfarm diversification. Economies of scale 

in production on larger farms allow operators to use their natural, physical, 

and capital resources to generate income from ancillary onfarm activities. 

For multi-enterprising farm households as a group, off-farm business income 

was by far the largest source of noncommodity-based business income 

earned, accounting for 80 percent of the $26.7 billion in alternative business 

income reported by farmers in 2007 (fig. 3). While onfarm diversification 

figures prominently among households operating intermediate and commercial farms, operating an off-farm business accounted for most of the alternative business income earned by households operating rural residence farms. 

ERS Family Farm Categories

USDA’s Economic Research Service (ERS) categorizes family farms based 

on gross annual farm sales. Based on standards set by the National Commission of Small Farms, ERS categorized small farms as those that generate 

less than $250,000 in gross annual sales; large-scale or commercial family 

farms generate gross annual sales of $250,000 or more. Small family farms 

are further distinguished by the major occupation of the primary operator. 

Rural residence farms are small farms where the operator is retired or lists 

something other than farming as his or her primary occupation. Intermediate farms are small farms where the operator lists farming as his or her 

primary occupation. Nonfamily farms are those for which the majority of 

the farm business is not owned by individuals related by blood, marriage, 

or adoption, and farms run by a hired farm operator. Nonfamily farms were 

excluded from this analysis. For more information, see http://www.ers.

usda.gov/publications/aib-agricultural-information-bulletin/aib759.aspx.
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The off-farm businesses operated by farm households represent an important, but 

often overlooked, direct linkage between the farm sector and the local nonfarm 

economy.5 What pushes rural residence farm households to become portfolio 

entrepreneurs? Both supply-side constraints and demand-side conditions are at 

play. On the supply side, rural residence farmers with excess resources at their 

disposal may operate a second enterprise when it is not feasible or desirable 

to expand the farm operation or to operate another farm. This situation arises 

when key inputs, such as adjacent land, are unavailable or too costly or when the 

farmers’ objectives in operating a farm are not primarily to increase farm profits. 

On the demand side, the multi-enterprising farm household may start a 

nonfarm business if other opportunities appear to be more profitable than 

more intensive use of farm resources. In rural communities, these opportunities also depend on the degree to which the local economy is thriving. Spatial 

isolation may diminish the number of entrepreneurial opportunities, while 

adjacency to metropolitan areas or to thriving micropolitan economies in 

rural counties may provide incentives for off-farm diversification.6

Multi-Enterprising Farmers and Occupational Mobility

Operating alternative onfarm and/or off-farm business ventures increases 

operator occupational mobility in and out of farming. Traditionally, farm 

operators exit farming by finding nonfarm employment or by increasing their 

hours at their current nonfarm job such that the operators’ primary occupational status changes from farming to something other than farming. As an 

alternative, a farm operator can start a nonfarm business and, as it prospers, 

the operator devotes more time and resources to it such that running the 

nonfarm business becomes the operator’s primary occupation. This process 

also works in reverse. The primary occupation of a farm operator may be at 

an off-farm job until the farm operation reaches a scale that requires enough 

of the operator’s time such that farming becomes the primary occupation. 

Alternatively, the entrepreneurial skills necessary to run an off-farm business 

may be transferred to onfarm activities such that, over time, farming becomes 

the farm operator’s primary occupation.

Data from the 2004 ARMS showed that farm household entrepreneurship was 

linked with a change in the occupational status among primary operators. In 

this survey, operators reported the status of their first and current primary occupations as either farming or nonfarming. Entrepreneurship pathways appear to 

have affected occupational mobility for residential lifestyle and commercial 

farm households, while retired and intermediate farm households remained 

largely unaffected. On average, 82 percent of commercial farm operators 

always farmed and 88 percent of residential lifestyle farm operators always 

considered their primary occupation to be in the nonfarm sector (table 2). 

The likelihood that the farm operator changed occupational status (either 

into or out of farming) increased substantially for farm households engaged 

in off-farm and alternative onfarm business ventures. Among commercial 

farm households, onfarm diversification and running an off-farm business 

provided an alternative transitional pathway into farming for a small but 

significant group of farm operators. Seven percent of commercial farm operators not engaged in any alternative business activities switched their primary 

occupation status from nonfarm to farming (see table 2). Among farm house5Onfarm business ventures represent 

a more intensive use of existing onfarm 

human and physical resources, representing a form of joint production that 

is difficult to separate from the farm 

business itself. Conceptually, income 

from operating another farm business 

produces the same type of indirect 

impacts on the nonfarm economy as 

those of the original farm operation. In 

contrast, off-farm businesses operated 

by farm households generate the same 

direct nonfarm impacts on the local 

economy as any other local nonfarm 

business. 

6A micropolitian county is a new 

Census Bureau classification category 

of nonmetropolitan counties with urban 

population centers of 10,000 residents 

or more but less than 50,000 residents. 

The creation of this new category 

is recognition of and an attempt to 

measure the urban economic forces in 

nonmetropolitan counties on a much 

smaller scale.
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holds engaged in onfarm diversification, just over 15 percent of commercial 

farm operators held nonfarm jobs before becoming full-time operators. 

Among portfolio entrepreneurs, almost 23 percent of commercial farm operators worked in a nonfarm position before becoming an operator. In these 

cases, off-farm business experience may have provided the management 

expertise the farmer needed to take over the reins of a large farm operation.7

For a subset of residential lifestyle farm operators, operating an off-farm or 

an alternative onfarm venture provided a transitional pathway out of farming. 

While only 8 percent of residential lifestyle farm operators not engaged 

in any alternative business activity were farmers before establishing their 

primary occupation in the nonfarm economy, almost 15 percent of alternative 

onfarm entrepreneurs moved out of farming (see table 2). Among portfolio 

entrepreneurs, the exit rate from farming as a primary occupation was almost 

23 percent for residential lifestyle farm operators. 

Operators of an off-farm business appear to be more likely to move into and 

out of farming, suggesting that their entrepreneurial acumen may be portable 

across some farm and off-farm enterprises. Movement out of farming for residential lifestyle farm households and movement into farming for commercial 

farm households indicates that the occupational status of the primary operator 

changed. ARMS 2004 data did not provide information on the dynamics and 

the timeframe of occupational transitions or how operating another business 

played a part in operator choices. Whether the residential lifestyle farm operator ran a commercial farm before downsizing and finally established a primary 

occupation in the nonfarm economy could not be inferred. Similarly, whether 

the farmer operated a small farm before operating a large-scale farm could not 

be inferred from the data. Future research could explore the role of nonfarm 

business formation among farmers in a changing rural economy.

7Very large farms (gross sales of 

$1,000,000 or more) are complex 

operations with a portfolio of onfarm 

diversification ventures and off-farm 

businesses that provide career opportunities for members of farm households 

linked to the large farm operation. 

Table 2

Occupational mobility of primary operators and their engagement in alternative enterprises, 2004

Always farming Transitioned into 

farming

Transitioned out 

of farming

Alway nonfarming 

occupation Total1

First occupation Farming Nonfarm Farming Nonfarm

Current primary occupation Farming Farming Nonfarm Nonfarm

Residential lifestyle farms: Percent

 No alternative activities – – 8.3 91.7 100.0

 Onfarm diversification – – 14.5 85.5 100.0

 Portfolio entrepreneur – – 22.6 77.4 100.0

 All – – 12.1 87.9 100.0

Commercial farms:

 No alternative activities 86.7 7.1 0.5 4.1 98.4

 Onfarm diversification 81.4 15.3 1.2 1.2 99.1

 Portfolio entrepreneur 70.7 22.9 1.7 3.6 98.9

 All 82.5 12.0 0.9 3.3 98.7

1Total percentages may not add to 100 because operators of commercial farms who reported their occupational status as “retired” are not 

included.

– denotes zero observations or not applicable.

Source: USDA’s Economic Research Service and National Agricultural Statistics Service, 2004 Agricultural Resource Management Survey 

(ARMS) data.
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The Scope and Complexity 

of Onfarm Diversification

Among the six different types of onfarm diversification ventures reported 

in the 2007 ARMS, 154,000 farm households engaged in custom work and 

115,000 farm households reported direct-to-consumer sales of local foods, 

together accounting for 68 percent of all onfarm diversification activities (table 3). The sale of agritourism services, forest products, and farmproduced value-added goods together accounted for 29 percent of the total. 

Custom work, direct sales, and agritourism activities accounted for almost 90 

percent of the total amount of income earned from the onfarm diversification 

activities examined here.

In 2007, the average farm household engaging in onfarm diversification 

activities earned an extra $14,700 (table 3). Custom work yielded the highest 

additional income per farm household, followed by agritourism and the sale 

of forest products. The lowest average additional income per farm household 

came through direct sales to consumers and sales of farm-produced valueadded goods.

In 2007, 12 percent of farm households capitalized on the complementary 

nature of these onfarm ventures by engaging in more than one of them. 

Almost 75 percent of farms in community-supported agriculture (CSA) 

arrangements and 50 percent of farm households engaged in sales of farmproduced value-added goods participated in at least one other onfarm activity 

Table 3

Onfarm diversification activities reported by farm households, 2007

Type of activity

Activities 

performed

Average income 

per farm

Average income 

per farm

Farms engaged 

in more than one 

activity

Number 

(percent)

Millions of dollars 

(percent) Dollars Percent

TOTAL 394,966

(100)

5,104.1

(100.0) 14,694 11.9

 Custom work 154,465

(39.1)

2,631.0

(51.5) 17,033 10.3

 Direct sales to consumers 115,465

(29.2)

1,291.5

(25.3) 11,185 24.5

 Agritourism 39,307

(10.0)

599.6

(11.7) 15,255 20.2

 Farm-produced value-added goods 38,405

(9.7)

209.6

(4.1) 5,457 50.7

 Sale of forest products 37,415

(9.5)

449.1

(8.8) 12,004 30.6

 Sales through CSAs 9,909

(2.5) na na 72.6

CSAs = Community-supported agriculture arrangements.

na= Not available.

Note: Data exclude nonfamily farms.

Source: USDA’s Economic Research Service and National Agricultural Statistics Service, 2007 Agricultural Resource Management Survey 

(ARMS) data.
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(see table 3). Farmers engaged in custom work or agritourism were less likely 

to engage simultaneously in another activity. For many of these farmers, 

direct-to-consumer sales of local foods represented an important complementary link supporting the economic viability of their onfarm ventures. 

According to the 2007 Census of Agriculture, 38 percent of all CSA farms 

also marketed output through direct-to-consumer marketing channels and 44 

percent of them sold farm-produced value-added goods. King et al. (2010) 

documented case studies of fruit, vegetable, dairy, and livestock producers 

interlinking these activities with various forms of direct marketing of local 

foods. Martinez et al. (2010) used data from the 2007 Census of Agriculture 

to show that farmers with sales of less than $50,000 who bundled additional 

onfarm activities with direct sales of local foods captured farm resource 

synergies that also generated additional local food sales income.

Custom work exhibited the fewest attributes that could be linked to other 

onfarm activities; 12 percent of these farmers also operated another onfarm 

business venture (see table 3). Farmers engaged in custom work rent out their 

technical skills and farm equipment as input services to other farm operations; 

these activities were not inherently compatible with the onfarm diversification 

ventures that produce final goods and services tailored to consumers.

Selected Onfarm Activities: Differences in Production Innovation, 

Product Diversification, and Marketing 

The three activities generating 95 percent of all onfarm diversification 

income—custom work, direct-to-consumer sales of local food, and agritourism—represent varying dimensions of onfarm business innovation and 

span the spectrum of agricultural activities. Custom work provides opportunities in agriculture’s production process. Direct-to-consumer sales generate 

innovative marketing channels for agricultural products that may facilitate 

marketing other onfarm activities. Agritourism markets the agricultural 

lifestyle and farm experience to rural and urban clientele. The inherent characteristics of these three activities give rise to distinct differences in participation among farm households by farm type, farm size, and their location 

relative to urban centers. 

A three-sector aggregation of the 19 ERS farm production types categorizes 

farms as: 

1. Field crop farms,8

2. Fruit, nut, vegetable, and nursery farms; and 

3. Livestock farms.

Different types of producers favored particular onfarm diversification activities in 2007. As an input link in the production process, custom work generated the largest share of noncommodity income for field crop producers, 

amounting to almost $1.5 billion in income, while livestock and livestock 

product producers earned $860 million from their custom work (table 4). 

Direct-to-consumer sales of local food accounted for $832 million in income 

for vegetable, fruit, nuts, and nursery crop farmers—almost two-thirds of all 

direct-to-consumer sales. Livestock and livestock product producers earned 

almost 60 percent of agritourism dollars in 2007.

8Field crops include grains, oilseeds, 

cotton, coarse grains, and hay.
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Small farm operators (sales of less than $250,000) accounted for 80 percent 

of farm households participating in onfarm diversification ventures, but large 

farm operators (sales of $250,000 or more) were twice as likely to engage in 

these onfarm ventures—31 percent of large farm operators versus 15 percent 

of small farm operators (see table 4). 

Small and large farm operators responded in significant numbers to the 

demand for custom work, suggesting that these farmers found a niche in 

the agricultural production process by providing specific input services to 

other farm operations. According to the 2007 ARMS, small farms accounted 

for 80 percent of all farms demanding custom work, whereas large farms 

accounted for 70 percent of all custom work expenses paid out. On the 

supply side, small farm operators accounted for two-thirds of all farm 

operators performing custom work tasks, but large farm operators earned 

54 percent of all custom work income. As a result, the typical large farm 

operator performing custom work earned three times as much noncommodity income per farm as the typical small farm operator (see table 4).9

This income discrepancy suggests that large farm operators were able to meet 

scale-appropriate demand from other large farms by using more sophisticated 

farm equipment and specialized operator expertise not available to small 

farm operators. 

Small farms accounted for over 90 percent of all farms reporting income 

from agritourism and direct-to-consumer sales of local foods; small farms 

accounted for 81 percent of all direct-sale farms. On the supply side, small 

farm operators rely on direct sales to capture a larger share of the food 

revenue dollar (King et al., 2010). On the demand side, small farmers have 

also made use of new local food sales marketing channels. In addition to 

roadside stands, farmers’ markets, and pick-your-own operations, small 

9With respect to income earned 

from custom work, small farms earned 

$11,600 per farm and large farms 

earned $34,750 per farm, on average.

Table 4

Characteristics of farm households engaged in selected onfarm diversification activities, 2007

Item

All onfarm 

diversification activities

Selected practices

Custom 

work

Agricultural 

tourism

Direct-to-consumer 

sales of local food 

Income from onfarm diversification activities, 

by farm production specialty: Millions of dollars

 Field crops 1,757.5 1,485.7 101.1 87.5

 Vegetable, fruit, nuts and nursery crops 1,354.7 285.0 111.4 831.6

 Livestock and livestock products 1,991.9 860.3 387.1 372.4

 Total 5,104.1 2,631.0 599.6 1,291.5

Onfarm activities, by farm sales class:

Percent of 

engaged 

farms

Percent 

of all 

farms

Percent of engaged farms

 Less than $250,000 80.3 14.6 67.9 93.4 92.2

 $250,000 or more 17.7 31.2 32.1 6.6 6.8

 Total 100.0 16.1 100.0 100.0 100.0

Note: Data exclude nonfamily farms.

Source: USDA’s Economic Research Service and National Agricultural Statistics Service, 2007 Agricultural Resource Management Survey 

(ARMS) data; 2007 Census of Agriculture.
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farmers also supply local retailers and restaurants with seasonal output (Low 

and Vogel, 2011). 

While these three onfarm diversification ventures elicit distinctly different 

participation rates, onfarm diversification activities generated only a quarter 

of all the noncommodity income U.S. farms earned from multi-enterprising 

activities. As a result, it is difficult to measure the magnitude of the direct 

impacts of these activities on their communities. 
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The Uniqueness of Portfolio Entrepreneurs and 

Their Importance to the Rural Economy 

Off-farm businesses represent the single largest source of noncommoditybased business income for multi-enterprise farm households, while generating strong direct links to the nonfarm economy. Because farm operations 

are tied to a specific geographic location, off-farm businesses operated by 

farm households can provide stability to the local economy’s stock of entrepreneurial capital, particularly within remote rural communities. Off-farm 

business activities of farm households, however, are not immune to fluctuating conditions in the macroeconomy. Average off-farm business income 

earned by farm households was $63,800 in 2001, peaked at $76,800 in 2006, 

and fell to $42,700 in 2008 (fig. 4).10 This trend appears to have followed 

the macroeconomic expansionary effects of the economic boom of 2004, 

followed by its bust in 2008.

Portfolio entrepreneur farm households who own and operate nonfarm businesses exhibit characteristics that separate them from other farm households. 

In 2007, they earned 75 percent more household income, on average, than 

farm households that did not operate an off-farm business (fig. 5). In addition to their off-farm business earnings, averaging $54,700, these farm 

households also earned higher levels of labor income and unearned income 

from their household wealth portfolio and from public and private transfer 

payments, on average. In contrast, portfolio entrepreneur farm households 

earned a third less in farm income, on average, than did farm households not 

operating off-farm businesses.

This income profile suggests that portfolio entrepreneur farm households 

are entrepreneurs first and farmers second based on their ability to generate 

pecuniary returns from allocating resources between their farm and nonfarm 

10These figures are in nominal dollars 

but track very closely with real dollars 

given this period’s low rate of inflation.
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enterprises as well as from optimally allocating resources within each enterprise. That these farm households earn less in farm income suggests that 

maximizing the combined income from both enterprises is a key household 

decision. 

ARMS data allow us to distinguish between two types of farm portfolio 

entrepreneurs based on whether they employ part-time or full-time workers. 

Off-farm businesses with no employees are classified as sole proprietorships. These sole proprietorships include mom-and-pop businesses that 

merely supplement farm household income and start-up enterprises with 

business plans to hire nonfarm workers in the future. Markley and Low 

(2012) refer to sole proprietorships as “necessity entrepreneurs” who may 

face few opportunities or possess limited financial or physical resources for 

enterprise growth. In 2007, 62 percent of portfolio entrepreneurs were identified as sole proprietors earning an average $22,600 in off-farm business 

income per farm household.

Off-farm businesses with employees are classified as employer establishments.11 Markley and Low (2012) consider employer establishments as 

examples of growth entrepreneurs responding to business opportunities 

in their local economies. Farmer-operated nonfarm employer establishments accounted for 38 percent of all off-farm businesses and generated an average $108,900 in business income per farm household. These 

establishments employed 853,000 workers, suggesting that many farmers 

have developed diversified enterprises and have effectively kept additional value-added income and employment within their local community. 

Employer establishments earn five times the off-farm business income per 

farm household as that earned by sole proprietorships, supporting Markley 

11Farm households that reported 

earning off-farm business income, but 

failed to report hiring any employees (a 

nonresponse), were counted as if they 

had reported zero employees. Potential 

bias in our estimates may exist if 

farm households operating employer 

establishments failed to report 

employing off-farm labor which would 

wrongly classify these nonresponses as 

sole proprietors. Two diagnostic checks 

suggest that this nonresponse bias was 

not a serious issue. First, except in 

two cases, the differences in the mean 

estimates of proprietors’ income and 

employer establishment income were 

statistically significant at the 10-percent 

level or, in many cases, even higher 

regardless of whether the sample was 

disaggregated by farm household 

type or by industrial sector. Thus, any 

bias present was not sufficiently large 

to affect statistical significance of 

estimated differences in sample means. 

Second, there were no establishments 

with employees that failed to report the 

industrial sector to which they belonged 

(see table 7), so this was not a source of 

nonresponse bias.
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and Low’s (2012) contention that the more dynamic notions of entrepreneurship—innovation, risk taking, and creative marshaling of resources—

may be found in employer establishments.

Differences in the average off-farm business incomes earned by different 

types of farm households suggest that their farm business characteristics may 

influence their off-farm business decisions. While off-farm businesses operated by rural residence and commercial farm households generated twice the 

household income of those operated by intermediate farm households, on 

average, distinguishing between sole proprietorships and business enterprises 

suggests a more complex pattern (table 5). Among sole proprietorships, 

commercial farmers generated almost twice the average off-farm business 

income of other farmers operating nonfarm proprietorships, whereas offfarm employer establishments operated by rural residence farmers generated 

almost twice the average business income of other farmer-operated nonfarm 

employer establishments. 

This contrast may suggest that off-farm sole proprietorships and employer 

establishments operated by commercial farmers may have strong ties to their 

farm operations; that is, the off-farm operations were spun off from their 

farm operations as market demand increased. Conversely, off-farm employer 

establishments operated by rural residence farm households may have weaker 

links to the farming sector and stronger links to the local nonfarm economy. 

Employer establishments operated by rural residence farms employed over 

70 percent of all local nonfarm workers in 2007, suggesting that these enterprises are more integrated into the community’s nonfarm economy.

The Industrial Structure of Off-Farm Businesses

Off-farm businesses generate unique economywide impacts in their local 

communities depending on the industry. Off-farm businesses were grouped 

Table 5

Characteristics of off-farm businesses operated by farm households, 2007

Type of farm operated

Item

Rural 

residence 

farms

Intermediate 

farms

Commercial 

farms

All family 

farms

Total number of off-farm businesses 274,688 92,793 28,102 395,583

 Percent of all farm households 19.3 17.7 13.7 18.4

 Sole proprietorships (percent of off-farm businesses) 59.1 74.9 59.9 62.8

Employer establishments (percent of off-farm businesses) 40.9 25.1 40.1 37.2

Average off-farm business income ($) 64,610 25,146 54,728 54,651

 Average sole proprietor business income ($) 24,433 13,305 42,793 22,568

 Average employer establishment income ($) 122,581 60,401 72,583 108,886

 Total number of jobs (1,000s) 613.0 162.1 78.0 853.1

 Percent of total 71.9 19.0 9.1 100.0

Notes: Data exclude nonfamily farms. Off-farm businesses not employing part-time or full-time workers are classified as sole proprietorships, 

while off-farm businesses with employees are classified as employer establishments.

Source: USDA’s Economic Research Service and National Agricultural Statistics Service, 2007 Agricultural Resource Management Survey 

(ARMS) data.
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into four broad industrial categories plus a category for farmers not reporting 

the industrial classification of their businesses: 

•	Agricultural services and natural resource extractive industries;

•	Construction;12

•	Wholesale trade, transportation, and utilities; and

•	Services.

Farm households operating off-farm businesses made important contributions to their local economies by generating an estimated $111.6 billion in 

sales of goods and services and $24.5 billion in hired labor income in 2007 

(table 6).13 Sole proprietors accounted for a third of the off-farm businesses 

that identified their industrial classification and for all of the unidentified 

businesses. Among the businesses identified by industry, off-farm business 

enterprises (those with employees) earned more than twice the total business 

income as was earned by sole proprietorships, on average.

Defined as the sum of labor and capital income plus indirect business taxes, 

value-added income is a summary measure of a community’s gross regional 

product. In addition to the value-added income generated by the farm operation, farmers who operated off-farm businesses also contributed an additional 

estimated $54.6 billion in 2007 to their local community’s gross regional 

product. Without this contribution, the goods and services supplied by 

farmer-owned off-farm businesses may have been imported from outside 

the local economy or may not have been available at all. Farmer-owned 

employer establishments accounted for 87 percent of all value-added income 

created by farmer-owned off-farm businesses, providing additional evidence 

of how important employing local area workers is to the community’s 

well-being. 

Overall, the industrial composition of off-farm businesses—half of which 

belong to the service sector—appears to correspond roughly to the industrial 

composition of the rural economy as a whole (see table 6). Retail trade and 

FIRE (finance, insurance, real estate) off-farm businesses accounted for 60 

percent of service sector enterprises, suggesting that these businesses offer 

a diverse set of entrepreneurial opportunities to farm household members, 

whether transitioning into or out of farming or remaining established portfolio entrepreneurs.14 In 2007, farm households operating off-farm servicesector businesses had the largest footprint in their local communities, 

generating $49.2 billion in sales and paying $14.1 billion in labor income to 

408,600 part-time and full-time workers. Operating with less physical capital 

and overhead relative to their human capital inputs, service-sector enterprises 

generated roughly 60 percent of all off-farm business profit income accruing 

to farm households and almost 60 percent of all off-farm labor income paid 

to their employees. 

In rural areas, construction enterprises occupy a niche in which geographic 

distances preclude relatively larger construction firms located in urban areas 

from cost-effectively competing for projects that improve a community’s 

stock of farm and nonfarm buildings, residential housing, and road infrastructure. Construction represents the second largest group of off-farm businesses, 

suggesting that many farm operators used their mechanical and structural 

12The construction sector also 

includes off-farm manufacturing 

businesses, a sample size too small to 

justify a separate category. Manufacturing enterprises accounted for less than 

15 percent of the off-farm businesses in 

this sector.

13The appendix explains the methodology used to estimate the volume of 

sales of goods and services, value-added income, and labor income generated 

by off-farm businesses.

14Rural residence, intermediate, and 

commercial farm families operated 

service-sector enterprises in the same 

proportions.
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Table 6

Characteristics of off-farm businesses, their economic footprint, and firm performance, 

by type of off-farm business, 2007

Sector

Item

Agricultural 

services and 

natural resource 

industries

Construction1

Wholesale 

trade, 

transportation, and 

utilities Services

Total 

reported 

types of 

business Unreported All

Number of off-farm businesses 23,352 57,058 23,138 113,148 216,696 178,887 395,583

Percent 10.8 26.3 10.7 53.2 100.0 –

Sole proprietorships (percent of 

off-farm businesses) 31.6 25.8 35.2 36.1 32.2 100.0 62.8

Employer establishments 

(percent of off-farm businesses) 68.4 74.2 64.8 63.9 67.8 – 37.2

Aggregate economic footprint: Millions of dollars

Off-farm business income 1,718 3,937 1,580 11,570 18,805 2,814 21,619

Total sales of off-farm business 

output 6,731 32,052 9,618 49,195 97,597 14,018 111,615

Value-added income 2,766 11,728 5,720 31,092 51,305 3,344 54,649

Labor income 762 6,226 2,808 14,136 24,468 – 24,468

Employment (thousands of jobs) 106.9 182.5 150.9 408.9 853.1 – 853.1

Sector performance: Percent

Off-farm business income 9.1 20.9 8.4 61.5 100.0

Total sales of off-farm business 

output 6.9 32.8 9.9 50.4 100.0

Value-added income 5.4 22.9 11.1 60.6 100.0

Labor income 3.1 25.4 11.5 57.8 100.0

Employment 12.6 21.6 17.8 47.5 100.0

Business performance:

Average business income ($) 73,585 68,992 68,275 102,254 86,778 15,733 54,651

Average sole proprietor income 

($) ---------- 36,2902-------- 55,151 47,128 12,732 22,568

Average employer establishment 

income ($) 91,567 76,771 94,956 128,857 108,886 – 108,886

Average number of employees 

per firm 6.7 4.3 10.1 5.6 5.8 – 5.8

Value-added/worker ($1,000) 22.3 55.6 30.0 61.4 50.1 – 50.1

1The construction sector also includes a small number of manufacturing enterprises. Off-farm manufacturing establishments accounted for 14 

percent of construction and manufacturing enterprises, 11 percent of this sector’s business income, and 7 percent of this sector’s employment. 

2There were insufficient observations to report average proprietor incomes for each of these three sectors; this figure is the group average.

Notes: Data on nonfamily farms excluded. Off-farm businesses not employing part-time or full-time workers are classified as sole proprietorships, 

while off-farm businesses with employees are classified as employer establishments.

Source: USDA’s Economic Research Service and National Agricultural Statistics Service, 2007 Agricultural Resource Management Survey 

(ARMS) data.
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design skills in both their farm and off-farm businesses. In 2007, 26 percent 

of off-farm business enterprises were in construction and generated $32 

billion in sales, paying out $6.2 billion in labor income to 182,500 workers 

(see table 6). 

Agricultural service ventures include custom work businesses. Overall, farm 

operations paid $5.4 billion for crop-related custom work in 2007 but only $2.6 

billion of these services were supplied by farm households’ onfarm diversification ventures. Thus, the net difference suggests that the remaining $3.7 billion 

in crop-related custom work purchased was supplied by nonfarm businesses 

regardless of whether they were operated by farm households. Farmer-operated 

off-farm businesses in agricultural services and other natural resource industries sectors earned $1.7 billion in income on $6.7 billion in sales (see table 

6). Since the industrial classification system used in ARMS is too aggregated, 

however, the data could not be used to identify the extent to which custom 

work was supplied by farmer-operated off-farm businesses.

Value-added income per worker measures the average contribution to the 

well-being of the local economy made by an employee of an off-farm business. Service sector and construction enterprises generated the most valueadded income per worker, or $62,400 per worker and $55,600 per worker, 

respectively, followed by value-added contributions made by off-farm enterprises in the wholesale trade, transportation, and utilities sector and agricultural services and natural resource industries sector (see table 6). The service 

sector and construction businesses play an important role in local community 

employment. The average number of employees per firm for farmer-owned 

off-farm businesses in construction and services was less than or equal to 

the average for all off-farm business enterprises. In contrast, the agricultural 

services, natural resource industries sector, and the wholesale trade, transportation, and utilities sector employed more workers per firm, on average, 

but generated 40-50 percent less than the average value-added income per 

worker for all off-farm business enterprises. The number of jobs linked to 

the type of off-farm employer establishment was not directly correlated with 

its contribution to the local economy, thus reinforcing the interest among 

economic development practitioners in the “quality” of jobs. 

Off-Farm Businesses as Crucial Linkages 

in the Rural Economy 

Within the urban/rural continuum, off-farm businesses of farm households 

located in rural areas earned, on average, higher incomes and appeared to be 

more important sources of local employment than off-farm businesses of farm 

households in urbanized areas in 2007. Off-farm enterprises were grouped 

by their location in three types of counties: metropolitan (metro) counties, 

nonmetropolitan-micropolitan (micropolitan) counties with urban populations 

of 10,000 up to 50,000, and nonmetropolitan-noncore (noncore) counties with 

urban centers less than 10,000 residents. Since 2006, average off-farm business income per farm household located in noncore counties has been about 

30 percent higher than average off-farm incomes earned by farm households 

in metro and micropolitan counties (fig. 6). Additional research will be necessary to understand if and how the economic and spatial isolation of noncore 

counties with respect to urban centers can explain this difference in off-farm 
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business earnings. For example, to what extent has this isolation dampened the 

impacts of recent macroeconomic contractions felt in noncore counties versus 

having sheltered farm household-operated off-farm businesses in noncore 

counties from stronger competitors in denser urban economies?

As a nonmetropolitan county is situated farther away from the urban core, the 

share of its employed labor force linked to farm-household-operated nonfarm 

businesses increases. In 2007, jobs directly linked to off-farm businesses 

operated by farm households accounted for 0.2 percent of the employed 

labor force in metro counties. Farm-household-operated off-farm businesses accounted of 1.6 percent of employment in micropolitan counties and 

almost 2.4 percent of employment in noncore counties (fig. 7). For a subset 

of noncore counties with centers of urban population of less than 2,500 residents (defined here as “totally rural counties”) off-farm businesses operated 

by farm households employed 4.2 percent of the local employment base (see 

box, “Indirect Impacts Linked to Off-Farm Businesses Are Not Included”). 

Data from the 2007 ARMS allowed us to explore the importance of local 

context in a farm household’s decision to operate an off-farm business (fig. 

8). The share of farm households engaged in an off-farm business follows 

a slight U-shaped curve as county population density decreases from 300 

inhabitants per square mile in metro counties to 5-9 inhabitants per square 

mile in rural counties. The relatively high shares of farm households operating off-farm businesses in metro and very urbanized nonmetro counties 

suggests that farm households are presented with a plethora of entrepreneurial opportunities in urbanized economies—opportunities that offset 

urban resource constraints precluding the expansion of the farm operation. 

Twenty-one percent of farm households in metro counties operated an offfarm business. In nonmetro counties, entrepreneurial farm households face 
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fewer business opportunities; hence, the share of farm households operating 

an off-farm business declined to 16 percent in counties with a population 

density of 30-75 inhabitants per square mile. 

Although rural counties with even lower population densities and smaller 

urban centers generate fewer business opportunities in increasingly thinner 

markets, the corresponding local stock of entrepreneurial capital may be even 

lower once the population goes below a certain density such that more farm 

households can compete for these business opportunities. Hence, the share 

of farm households operating off-farm businesses rose to 20 percent in rural 

counties with population densities of 10-29 inhabitants per square mile to 

24 percent in rural counties with population densities of 5-9 inhabitants per 

square mile (see fig. 8). Once a county’s population density falls below the 

sustainable threshold of 5-9 inhabitants per square mile, markets become too 

thin and alternative entrepreneurial opportunities become too scarce for many 

Indirect Impacts Linked to Off-Farm Businesses Are Not Included

Jobs indirectly tied to off-farm enterprises result from second-round effects of local off-farm businesses input purchases as measured by Type I multipliers and consumption expenditures made by the employees of these off-farm 

businesses that are incorporated into Type II or social accounting matrix (SAM) multipliers. These multipliers are 

derived from the U.S. input-output model. Using these multipliers suggests that the indirect employment impacts 

could range nationally from 256,000 additional jobs up to 2.3 million additional jobs.

There are two central ideas that strike at the validity of reporting these indirect employment estimates. First, at the 

conceptual level, these estimates would only be valid under the assumption that farmer-operated off-farm businesses did not exist when their local economies were operating in equilibrium and after which their sudden appearance 

would cause their local economies to adjust to a new equilibrium. Since ARMS data were collected on off-farm 

enterprises already part of the industrial fabric of their local communities, this assumption is not valid (see the appendix for further elaboration of this point). 

Second, at the empirical level, these national-level estimates are not robust because industrial and demographic 

structures and current labor market conditions vary too widely from county to county to assess whether these indirect employment links are strong or weak. Manufacturing enterprises generate low direct employment effects, but 

their intensive use of high-valued inputs generates the highest indirect job multipliers. Service sector enterprises 

use the smallest volume of purchased inputs and generate the smallest indirect employment multipliers. Metro 

counties have dense industrial structures that contribute to high indirect job multipliers, while sparsely populated 

rural counties must import a much larger share of their industrial and consumer goods, which contributes to smaller 

indirect job impacts.

Indirect employment linked to off-farm businesses also depends on the county’s current economic climate. A robust 

economy with a churning labor market may experience little indirect employment effects linked to off-farm businesses as nonfarm job opportunities remain plentiful. In a stagnant rural county, off-farm businesses may generate 

downstream effects indirectly leading to additional local jobs. 

The magnitude of local employment linkages, as measured by job multipliers, evolves in the long run as the diffusion of new technologies alters the composition of local industries and their links to the broader economy. For example, a new business service provided by an off-farm enterprise in a rural county may not have existed previously 

because information technologies were underdeveloped. Conversely, as technologies mature, the same local service 

may later be outsourced globally or bundled with similar goods and services, effectively redefining the nature of the 

off-farm business. It is unclear how job multipliers may change, but the economic development process suggests 

that off-farm business, whether farmer-owned or not, will demand workers with greater technical skills over time.
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farm households developing off-farm businesses while still farming. In most 

remote counties (population densities of 4 inhabitants per square mile), only 

11 percent of farm households were able to operate an off-farm business.

The same U-shaped trend showing farmers engaged in off-farm businesses 

over a sustainable population density threshold was also observed in 2006, 

2008, and 2009 ARMS data. Future research will test whether this pattern 

qualifies as a stylized fact characterizing the availability of off-farm business 

opportunities for farm households residing in urban and rural counties where 

population densities vary.

Farm households can and do play important roles in maintaining the sustainability of remote noncore communities (see figs. 7 and 8). Most of these 

farm households operate small farms, with the operator reporting a nonfarm 

primary occupation. Although their contribution to the value of farm production remains small, portfolio-entrepreneur farm households play a significant 

role in the rural economy’s stock of social capital and employment base. 

Bartlett (1986) observed that small farmers who work off farm were farming 

the “rural lifestyle.” This observation can be extended to the entrepreneurial 

farm households responsible, in part, for sustaining it.
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Conclusions

Many U.S. farm households earn income from entrepreneurial activities 

not directly tied to the production of farm commodities, typically through 

off-farm business ventures. In 2007, these ventures generated $26.7 billion 

in additional farm household income. Niches in agriculture’s production 

process, product diversification, marketing, and associated farm and rural 

amenities have created a variety of onfarm opportunities for farm resources 

to be used in new and innovative ways. These activities generated $5.1 

billion in additional farm household income in 2007, while contributing to 

the rural lifestyle. 

In 2007, off-farm business profits provided the largest single source of 

noncommodity enterprise income for farm households ($21.6 billion in 

profits from $111.6 billion in sales) and $54.6 billion in value-added income 

to the gross regional products of local economies, including paying out $24.5 

billion in wages and salaries to 853,100 part-time and full-time employees. 

Entrepreneurial acumen appears to be quite portable across farm and nonfarm 

enterprises, providing an alternative occupational pathway into and out of 

agriculture. Off-farm businesses employ a significantly larger share of the 

employed labor force in micropolitan and noncore counties than in metropolitan counties, such that almost 5 percent of nonfarm jobs in the most remote 

rural areas were linked to off-farm businesses operated by farm households. 

For counties with population densities too low to sustain local nonfarm 

activity, however, off-farm business opportunities for farm households 

diminished substantially.
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Appendix: Estimating Sales, Value-Added 

Income, and Labor Income Generated 

by Off-Farm Businesses

To produce the estimates of output, value-added income, and labor income 

generated by off-farm businesses operated by farm households, the fixed relationships between profit income and output embedded in a social accounting 

matrix (SAM) multiplier model were used. In the SAM framework, an 

exogenous shock to a particular group of industrial sectors or households 

(Δx) multiplied by a matrix of SAM multipliers (M) produced economywide 

effects on sectoral outputs, factor incomes, and household incomes (Δy),

(1) Δy=M·Δx.

The Hadamard product of the vector of direct value-added income coefficients (v) and the vector of sector outputs·(MA·Δx) converted the new output 

flows into value-added incomes by sector (Δyv

) that were required to support 

these changes in firm output,1

(2) Δyv = v·(MA·Δx).

The Hadamard product of the vector of direct labor-income coefficients (l) 

and the vector of sector outputs·(MA·Δx) converted the new output flows into 

labor incomes by sector (Δyl

) that were required to support these changes in 

firm output,

(3) Δyl = l·(MA·Δx).

The Hadamard product of the vector of direct labor-output coefficients (L) 

and the vector of sector outputs·(MA·Δx) converted the new output flows 

into employment demanded by sector (Δj) that were required to support these 

changes in firm output,

(4) Δj = L·(MA·Δx).

Equations 1-4 assume that the national or regional economy is in an 

accounting equilibrium which when perturbed by an exogenous event yields 

a new equilibrium outcome. 

Farm households operating off-farm businesses and generating profit 

income are assumed to operate in the original equilibrium. That is, they 

are not starting a new business. Therefore, no “new” derived demands for 

intermediate goods and labor services are generated. The backward linkage 

effects captured by the global SAM multiplier matrix MA cannot be counted. 

Instead, assuming farmers are operating off-farm businesses in equilibrium 

requires modification of the model such that we exclude indirect and induced 

effects that would be generated by using Type I, Type II, and/or SAM 

multipliers.

Given the 2007 ARMS data on off-farm business income, we worked backward to obtain estimates of equilibrium sales, value-added income, labor 

income, and employment generated by these enterprises. Off-farm business enterprise income earned by farm households was recorded as gross 

1The multiplier matrix MA is the 

submatrix of M that contains only the 

interindustry multipliers. The Hadamard product of two matrices of the 

same dimension is the matrix of the 

elementwise products: if A = (aij) and B

= (bij), then AB = (aijbij).
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operating surplus in the national income and product accounts. Dividing the 

sectoral levels of off-farm business income (Δπi

’s) by these direct profitincome coefficients (bπi

’s) yielded the volume of sales or output by sector 

produced by these off-farm enterprises, 

(5) Δxi = Δπi/bπi ,

where Δxi

 represents the level of sales for each of the four sectors in table 7 

(i = 1, 2, 3, 4). We now have recovered the level of apparent exogenous sales 

that would produce the average annual level of real off-farm business income 

reported by farm households in table 3. Given this information, the vector of 

the sector estimates of value-added income generated by the off-farm businesses is,

(6) Δyv = v·Δx .

2

Similarly, the vector of the sector estimates of labor income is,

(7) Δyl = l·ΔxEE .

Labor income estimated in equation 7 is calculated using only sales generated by farmer-run employer establishments ΔxEE. Similarly, the number of 

jobs linked to off-farm business by sector are estimated by,

(8) Δj= L·ΔxEE ,

where L is the vector of labor output ratios.

Equations 5-8 form the basic equations for the special case of the SAM 

multiplier model that quantifies only the economywide direct impacts of offfarm businesses operating in current equilibrium. Using direct coefficients 

instead of multiplier values avoids including spillovers that can only occur 

when a new event perturbs the original equilibrium. This kind of analysis is 

a form of “contribution analysis” because it measures the contribution of a 

particular industrial activity to local or regional economy in equilibrium. 

To test the soundness of this approach, we initially used the direct job/output 

ratios from a four-sector U.S. model generated by the 2002 IMPLAN (Impact 

analysis for PLANning) software and database to compare the number of 

jobs estimated in equation 8 with the number of jobs linked to off-farm businesses reported in ARMS for 2006-07 (see table 3). The employment estimates in equation 8 hold up well when compared with the ARMS estimates. 

When we used the 2008 IMPLAN database that accounts for increases in 

labor productivity embedded in the 2002 benchmark U.S. input-output tables, 

we found that this latter 2007 SAM estimate of the number of jobs directly 

linked to off-farm businesses underestimates the 2007 ARMS estimate by 

almost 160,000 jobs. While there is a need for further research, three possibilities may explain this difference. First, the sectoral labor productivities 

of the farmer-operated off-farm businesses may be less than the industry 

average for the economy as a whole. Second, unlike the SAM estimates, the 

ARMS estimates are reported responses based on labor market conditions 

that may include disguised underemployment. Third, year-to-year changes in 

the ARMS sampling weights also may introduce variation in these estimates. 

2For unidentified off-farm businesses, 

their value-added income was computed by multiplying their total sales by 

a modified value-added coefficient, the 

latter of which is computed by subtracting the average labor-income coefficient from the average value-added 

coefficient for the U.S. economy as a 

whole.
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Nevertheless, the overall comparison of the ARMS estimates with the SAM 

simulation estimates suggests that this approach will produce reasonably 

robust results. 

The direct coefficients of profit, value-added, and labor incomes were calculated using the 2002 U.S. benchmark input-output tables published by the 

Department of Commerce, Bureau of Economic Analysis.

Appendix table

Total number of jobs linked to off-farm businesses, 2005-07

Year

Off-farm business 

income1 ($ millions)

Estimated jobs (1,000s)

Modified SAM 

estimate (equation 8) ARMS data

Using 2002 IMPLAN job/output ratios:

2005 18,447 875.6 -

2

2006 17,741 850.4 1,021.2

2007 18,805 899.6 853.1

Using 2008 IMPLAN job/output ratios:

2007 18,805 690.2 853.1

1Proprietors’ income is excluded. 

2ARMS data on the number of workers employed by off-farm businesses was first collected in 

2006.

SAM=Social accounting matrix.

Source: USDA’s Economic Research Service and National Agricultural Statistics Service, 

2005-07 Agricultural Resource Management Survey (ARMS) data.