This glossary is intended to provide the user with a working
definition of the key terms and a better understanding of how these
concepts are applied in estimating farm household income and
wealth.
Farm
A farm is defined as any place from which $1,000 or more of
agricultural products were produced and sold, or normally would
have been sold, during the year. Since the definition allows for
farms to be included even if they did not have at least $1,000 in
sales, but normally would have, a system is developed by USDA's
National Agricultural Statistics Service for determining when a
farm normally would have. These are called point farms. If a place
does not have $1,000 in sales, a "point system" assigns dollar
values for acres of various crops and head of various livestock
species to estimate a normal level of sales. Point farms are farms
with fewer than $1,000 in sales but have points worth at least
$1,000. Point farms tend to be very small. Some, however, may
normally have much larger sales, but experience low sales in a
particular year due to bad weather, disease, changes in marketing
strategies, or other factors. For farms with production contracts,
the value of the commodities produced is used, not the amount of
the fees they receive. Changes are made to the point system over
time. For example, beginning with the 1997 Census of Agriculture,
operations receiving $1,000 or more in Federal government payments
were counted as farms, even if they had no sales and otherwise
lacked the potential to have $1,000 or more in sales. And, for
2002, a farm that had $500 point value and $500 in government
payments was considered a farm. This would not have been true for
the 1997 census. The most recent Census of Agriculture is for 2007
( USDA, NASS. 2007 Census of Agriculture, United
States, Summary and State Data, Vol. 1, Geographic Area Series,
Part 51, February 2009 
). More
than one-quarter of farms have no sales in a typical year, and at
least another 30 percent have positive sales of less than
$10,000.
Farm Operator and
Principal Farm Operator
The farm operator is the person who runs the farm, making the
day-to-day management decisions. The operator could be an owner,
hired manager, cash tenant, share tenant, and/or a partner. If land
is rented or worked on shares, the tenant or renter is the
operator. In the recent Census of Agriculture and in the
Agricultural Resource Management Survey (ARMS),
information is collected for up to three operators per farm. In the
case of multiple operators, the respondent for the farm identifies
who the principal farm operator is during the data collection
process.
Family Farm
The general concept of a family farm is one in which ownership
and control of the farm business is held by a family of individuals
related by blood, marriage, or adoption. Family ties can and often
do extend across households and generations. Historically, it was
not uncommon for the family farm to provide all of the labor for
the farm and to own all of the land and capital of the farm. That
is no longer true today, although the extent to which individual
farms hire nonfamily labor, rent-in land or other capital, or
contract for various farm services varies greatly across farms. In
short, the organization of family farms changes over time.
There is no hard-and-fast definition of a family farm, unlike
the farm definition. In its program of analyzing the well-being of
farm operator households using microdata, the ERS definition of
family farms has changed over time. A preferred definition of a
family farm would allow for organizational changes in the way in
which operators structure their farm businesses as they respond to
changes in technology, the marketplace, and policies, but still
capture the general concept of a family farm in which a family unit
maintains majority control and ownership.
The current definition of a family farm, since 2005, based on
the Agricultural Resource Management Survey is one in which the
majority of the business is owned by the operator and individuals
related to the operator by blood, marriage, or adoption, including
relatives that do not live in the operator household. Although the
definition of a family farm has changed somewhat over time, the
share of U.S. farms classified as family farms has changed little
since 1996, ranging from 97.1 to 98.3 percent of all farms (see the
data table on family and nonfamily farms, by
farm size class (gross sales), 1996-2011 
).
Immediately prior to the implementation of the current
definition, farms were considered family farms unless they were:
organized as cooperatives, organized as corporations with the
majority of shareholders not related (by blood, marriage, or
adoption) or operated by a hired manager. In 2004, 98 percent of
farms were classified as family farms using this definition with
data from the Agricultural Resource Management Survey (see Structure and Finances of
U.S. Farms, Family Farm Report, 2007 edition for more
information). When the family farm definition was established using
USDA's Farm Costs and Returns microdata in 1988, farms were defined
as family farms unless they were organized as cooperatives or
nonfamily corporations, or when the operator reported not receiving
any of the net income of the business. At that time, 99 percent of
farms were classified as family farms (see The Economic Well-Being of Farm Operator
Households, 1988-90 ). USDA
microdata were first collected in 1984 on the Farm Costs and
Returns Survey; at that time, no distinction was made between
family and nonfamily farms.
For farms where there is more than one operator and the multiple
operators do not share a housing unit, detailed household data and
off-farm income are not collected for the additional operators on
either the Census of Agriculture or the ARMS-household data is only
collected for a single principal operator. Hence, this data
limitation has the effect of undercounting the total number of
family farm households.
Farm Operator Household
Farm operator households are those who share dwelling units with
principal farm operators of family farms. Multiple operators that
do not share the same household operate less than 10 percent of
family farms. In this case, the farm operator household population
would include the households of the principal farm operator, but
not the households of the other operator(s).
Farm Operator Household
Income
The Agricultural Resource Management Survey (ARMS), conducted by
ERS and the National Agricultural Statistics Service (NASS),
provides the data necessary for estimating operator households'
income. The Current Population Survey (CPS), conducted by
the Bureau of the Census, is the source of official U.S. household
income statistics. Thus, calculating an estimate of farm household
income from the ARMS that is consistent with CPS methodology allows
comparing income between farm operator households and all U.S.
households.
The CPS definition of self-employment income is net money income
from the operation of a business by a person on his or her own
account. CPS self-employment income includes income received as
cash, but excludes in-kind or nonmoney receipts. The CPS definition
departs from a strictly cash concept by deducting depreciation, a
noncash business expense, from the income of self-employed
people.
Total income for the farm operator household consists of income
from the farm business, income from other farming activities, and
income from earned and unearned off-farm sources.
Household income from the farm business: Several factors
affect how much the household of the principal operator earns from
the farm business, including how many households are associated
with operating the farm, the legal organization of the farm, and
whether or not the principal operator receives a wage or salary for
operating the farm.
- Some farms have multiple operators who do not share a single
household; in such cases, household income is calculated only for
the principal farm operator's household and includes only that
household's share of farm business income.
- Also, if a farm is organized as a C-corporation, the profit
that the firm generates is retained by the business until the
business pays out those earnings in the form of dividends. In 2006,
for C-corporations, we include the farm business dividends that the
principal operator household receives in household farm income.
(The remaining profit of C-corporations is retained by the farm
business or paid to other shareholders and is not reflected in the
principal farm operator household's income.) Prior to 2006, all of
the profits generated by farm businesses organized as
C-corporations were included in farm household income based on the
share of business returns the principal farm operator household
reported as theirs.
- Operators of C- and S-corporations may also pay themselves a
wage for operating the farm, and those payments are included both
as an expense to the business and as income to the farm household
when they are paid. Regardless of legal organization, wages and
salaries paid by the farm business to household members other than
the operator(s) are included in household income from the farm
business.
Household income from other farming activities:
A household may earn income from more than one farm. The other
farming activities can include operating another farm or renting
out farmland from another farming operation to another operator.
Income from these sources is included in the farm operator
household's earnings from farming activities.
It is important to note that the earnings of the operator
household from farming activities as defined in the USDA measure is
not a complete measure of the return provided by the farm. It
excludes nonmoney income, in particular, the rental value of a
farm-owned dwelling. In addition, farm losses, or negative farm
earnings, of the operator household can reduce the income taxes
paid on off-farm sources of income. The measure also excludes
increases in inventories, which the household could potentially
sell for cash.
Household off-farm income: Off-farm income can be
classified as earned or unearned. Earned income sources are those
that require a household member to allocate their labor or
management time to the activity. This includes wages and salaries
and off-farm self-employment income. Unearned income sources are
passive or transfer income, such as from interest, dividends,
private pensions, Social Security, veterans' benefits, and other
public programs.
Farm Operator Household
Wealth
Farm household wealth is derived from a variety of sources. It
ranges from physical assets of both the business and household to
various types of financial assets, all differing in degree of
liquidity, capital certainty, and visibility. For example, wealth
held in a bank account is highly liquid, capital certain, and
visible. In contrast, wealth held in real estate is illiquid, or
not readily available on demand. Wealth not only reflects the
collective value of assets but also considers the business and
consumer debt of households.
Components of Farm Household Wealth
Farm Typology
- Small family farms (gross sales less
than $250,000). The National Commission on Small Farms selected
$250,000 in gross sales as the cutoff between small and large-scale
farms.
- Residence family farms:
- Retirement farms: Small farms whose operators report they are
retired.
- Residential/lifestyle farms. Small farms whose operators report
a major occupation other than farming.
- Intermediate family farms:
- Farming-occupation farms: Small family farms whose operators
report farming as their major occupation.
- Low-sales farms: Gross sales less than $100,000.
- High-sales farms: Gross sales between $100,000 and
$249,999.
- Large-scale family farms (gross sales
of $250,000 or more). The National Commission on Small Farms
selected $250,000 in gross sales as the cutoff between small and
large-scale farms.
- Commercial family farms:
- Large family farms: Gross sales between $250,000 and
$499,999.
- Very large family farms: Gross sales of $500,000 or more
- Nonfamily farms: Any farm not classified as a family farm, that is, any farm for which the
majority of the farm business is not owned by individuals related
by blood, marriage, or adoption.
Collapsed Farm
Typology
The collapsed farm typology combines the farm typology groups
into three categories:
- Residence farms. Includes retirement and
residential lifestyle farms.
- Intermediate farms. Small family farms
whose operators report farming as their major occupation.
- Commercial farms. Includes large and
very large farms.
Commodity Specialization
A farm's commodity specialization is determined by the one
commodity or related group of commodities that makes up at least 50
percent of the farm's total value of production. This definition is
consistent with the North American Industry Classification System
(NAICS). Sometimes a farm does not have one commodity or one
related group of commodities that makes up 50 percent of the total
value of production. These farms have a mix of commodities, and are
classified as other crops or other livestock operations. Also, when
sample sizes are too small to report reliable statistics for a
particular commodity specialization, even if at least 50 percent of
the farms' value of production is represented by one commodity or a
related group of commodities, they are included with the other
crops or other livestock categories.
Disposable Personal
Income of Farm and Nonfarm Residents
This is a longstanding statistical series that was published by
ERS and its predecessor USDA agencies in the Economic
Indicators of the Farm Sector series and the Farm Income
Situation series for many years. Both the population and the
income concept differ from the concepts used today. Farm residents
are those who live on farms of 1 acre or more in rural areas,
including hired workers and all others living on these farms. It
excludes the households of operators who do not live on their
farms. The disposable personal income series is an after-tax income
that was estimated from sectorwide aggregate data. It was based, in
part, on the annual net farm income estimate of the farm sector and
various assumptions about how much of that income farm residents
received and how much off-farm income farm residents received.
Because the population concept was outdated and the income estimate
was constructed using various assumptions rather than with observed
data, the series was discontinued. However, it remains important as
the only historical series that compares the well-being of farm and
nonfarm persons.