Farm Income and Costs: Glossary

Production Expenses

Production expenses are the cost of the goods and services used in the production of agricultural commodities.

What do production expenses represent?

• Production expense estimates measure purchases made during a calendar year and the cost of capital assets according to a fixed annual schedule regardless of when commodities are produced. This treatment is consistent with the cash accounting basis of most farm income items but means that production expenses are not exactly correlated with annual value of production.

• Most production expenses represent cash outlays. The two noncash expenses are capital consumption and perquisites (noncash benefits) to hired labor.

• Individual production expense items include all expenditures, whether made by operators, contractors, or nonoperator landlords. Total production expenses exclude nonoperator landlord expenditures because the total includes net rent to nonoperators, which deducts landlord expenses from landlord income, rather than gross rent.

What is included in production expenses?

• The six production expense categories are intermediate consumption outlays, labor expenses, interest expenses, net rent received by nonoperators, property taxes, and capital consumption.

• Intermediate consumption outlays are expenditures for inputs used in the production process other than those provided by hired labor or capital. The three intermediate product categories are purchased farm-origin products (feed, livestock and poultry, seed), manufactured inputs (fertilizer, pesticides, fuels and oil, electricity), and other intermediate expenses (repair and maintenance; machine hire and customwork; marketing, storage, and transportation; miscellaneous expenses).

• Net rent received by nonoperators, labor expenses, and interest expenses constitute factor payments to nonoperators who provide the factors of land, labor, and capital to the production process. They are included in net value added because they are returns to assets used in agricultural production but are excluded from net farm income because it measures returns to producers of agricultural commodities.

• Capital consumption estimates the value of the input made by capital items. It represents the cost of replacing the portion of capital items consumed in the production process or destroyed during a year at current prices.

• Net rent received by nonoperators equals income received by nonoperators less expenses paid by nonoperator landlords. Income received by nonoperators includes cash and share rent paid by operators, government payments received by nonoperator landlords, and certain forest product receipts received by nonoperators from land not engaged in agricultural production.

• Expenses associated with operator dwellings located on farms are included in the value-added and net farm income series because gross imputed rental value of farm operator dwellings is included in agricultural sector output and gross farm income. These expenses are not included in the net cash income and production transactions series.