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Off-Farm Income Plays a Major Role in Total Household Income

Farm Business Management Update, April 2000

By Gordon Groover

A recent publication of the Economic Research Service of USDA provided insights into dual nature of household income for most family farms in 1998. The household income for the average U.S. farm is $59,734 (see Table 1), about 15 percent higher than the $51,900 average for all U.S. households. The average farm only generated $7,106 of total earnings from farming activities with $52,628 coming from off-farm sources, representing 88 percent of the farming households' income. In contrast, average farm net worth was $492,195 with 83 percent from farm sources.

Table 1: Defining Operator Household Income

Operator household income is measured according to the definition of income used in the Current Population Survey (CPS), conducted by the Bureau of the Census. The CPS is the source of official U.S. household income statistics. Calculating an estimate of farm household income that is consistent with CPS methodology allows comparisons between the income of farm households and all U.S. households. The CPS defines income to include any receipts of cash. The CPS definition departs from a strictly cash concept by deducting depreciation, a noncash business expense, from the income of self-employed people. The derivation of operator household income from the 1998 Agricultural Resource Management Survey is outlined below.
ItemDollars per farm
Net cash farm business income14,357
Less depreciation7,409
Less wages paid to operator and gross farmland rental income1,180
Less adjusted farm business income due to other households1,332
 Dollars per household
Equals adjusted farm business income4,436
Plus wages paid to operator, net farmland rental income, and other farm-related earnings2,670
Equals earnings of the operator household from farming activities7,106
Plus earnings of the operator household from off-farm sources52,628
Equals average farm operator household income59,734
Net cash farm business income presented above differs from sector net cash income. Net cash farm business income is a component of farm sector income. It excludes the income of contractors, landlords, farms organized as nonfamily corporations or cooperatives, and farms run by a hired manager. Source: Off-Farm Income Supports Many Farm Households," February 2000, Agricultural Income and Finance Situation and Outlook Report (SIA-74).

Farms classified as limited-resource1, retirement2, residential3, and lower-sales4 farms used off-farm income to subsidize the farm operation in 1998. On average limited-resource farms used $3,229 of their total off-farm income ($13,153) to support the farming operation. In contrast, high-sales5, large family farms6, and very large family farms7 contribute positively to total household income. Of no surprise, farms near a metro-region8 had higher total household income and greater net worth.

The majority of U.S. farm households depend greatly on the availability of and access to off-farm employment. In addition, access to off-farm employment provides access to family health insurance and employer pension plans at a lower costs than are available to self-employed farmers.

The complete report "Off-Farm Income Supports Many Farm Households" is part of the February 2000, Agricultural Income and Finance Situation and Outlook Report (SIA-74). The publication can be ordered by calling 1-800-999-6779 or viewed at:

1 Limited-resource. Any small farm with: gross sales less than $100,000, total farm assets less than $150,000, and total operator household income less than $20,000. Limited-resource farmers may report farming, a nonfarm occupation, or retirement as their major occupation.
2 Retirement. Small farms whose operator's report that they are retired (excludes limited-resource farms).
3 Residential/lifestyle. Small farms whose operators report a major occupation other than farming (excludes limited-resource farms).
4 Lower-sales. Small farms with sales less than $100,000 whose operators report farming as their major occupation (excludes limited-resource farms).
5 Higher-sales. Small farms with sales between $100,000 and $249,999 whose operators report farming as their major occupation.
6 Large family farms. Sales between $250,000 and $499,999.
7 Very large family farms. Sales of $500,000 or more.
8 Metro areas are defined by the U.S. Office of Management and Budget as geographic areas with a large population nucleus (generally at least 50,000 inhabitants), plus adjacent communities that are socially and economically integrated with that nucleus.

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