In a volatile-income industry like farming, an important aspect
of well-being is a household's capacity to maintain its standard of
living through periods of low prices or yields. Furthermore,
aggregate statistics like the median or mean reflect general
tendencies in the population but do not reveal how income or wealth
is distributed across the population. To describe the economic
conditions across different types of farm households and to capture
the ability of households to maintain their standard of living,
this chapter presents information on:
Farm Household Wealth and
Income
During years of low income, farm households may be able to
borrow against, or liquidate, assets. Household net worth (assets
minus debt) therefore reflects the potential for households to
maintain their standard of living. Furthermore, because wealth is
the accumulation of income over time, it provides a longer term
measure of the returns that farm households have received from
employing their labor and capital in farm and off-farm
activities.
To jointly consider both income and wealth, farm households are
divided into four groups, separated into low and high levels of
income, and low and high levels of wealth, with the estimated
median levels of U.S. household income or wealth as the dividing
lines between low and high. Median income (or wealth) is the level
at which 50 percent of households have greater income (wealth) and
50 percent have less.
Farm and other U.S. households differ in the pattern of wealth
compared to income. In 2011, less than 4 percent of all farm
households--in contrast to 50 percent of all U.S. households--had
wealth less than the estimated U.S. median household level. The 96
percent of farm households with high wealth are split into two
groups, with many more having incomes above the U.S. median than
below the U.S. median. It is not surprising that farm operator
households have more wealth than the average U.S. household because
capital assets, like farmland and equipment, are generally
necessary to operate a successful farm business. In general,
households with self-employed heads have greater wealth than the
average U.S. household.
So who is in the small group of low-wealth farm households? On
average, the low-wealth group is younger, operates substantially
fewer acres, and generates lower farm sales than the farm operator
population as a whole (see table on
characteristics of principal farm operator households, by joint
income-wealth indicator, 2011 
).
Among low-wealth households, those in the high-income subgroup
disproportionately report their primary occupation as "other than
farming/ranching." Those in the low-income subgroup were more
likely to have operators that reported farming as a primary
occupation, but most still relied on nonfarm work as the major
source of income.
Similar to U.S. households in general, farm households saw their
wealth increase over most of the first half of the 2000s. They also
saw a decline in wealth leading up to and during the recession that
began late in 2007. In nominal terms, the wealth of households
associated with residence and intermediate farms has grown slowly
since 2008. In contrast, from just 2009 to 2011 the wealth of
households operating commercial farms increased by 30 percent. The
different increases in wealth are primarily because commercial farm
households own more farmland, which has appreciated rapidly in
recent years.
Risk and Farm Programs
U.S. farm policy includes several programs that make cash
payments to farm businesses, which are often passed on, at least in
part, to farm households. Direct payments provide regular payments
to farm businesses based on historic yields and acreage for
particular row crops. Payments are made regardless of production
outcomes or market prices. Direct payments therefore do not
stabilize income as much as price-related payments like
Countercyclical Program payments, which occur when prices fall
below predetermined levels, or disaster payments, which are made in
severe conditions such as during a drought or flood.
The quantity of payments and type of payment varies by farm
type. Commercial farms and the households associated with them
receive the majority of government payments. The distribution of
farm program payments by farm type reflects, in large part, the
fact that most government payments are made on a per-acre or
per-output basis, meaning that larger farms will naturally receive
more government payments than farms cultivating fewer acres. Direct
payments, which are tied to historic production in a pre-defined
period, account for most of the payments to commercial farms, while
conservation payments account for most of the payments received by
residence farms. Both types of payments change little from year to
year in the period governed by the farm act that authorized them.
For more information on government payments and farm households,
see the Farm and Commodity Policy
topic.
Crop farms perennially face the risk that poor weather or pests
will lower yields or even decimate a crop. The Federal Government
subsidizes premiums for multiple-peril crop insurance. Although
residence and intermediate farms have fewer resources to overcome a
bad crop year, they depend less on federal crop insurance than
commercial farms.
Commercial farm households can bear more risk than other
households because of their higher wealth, but they also typically
plant more acres of crops. As crop acreage increases, the potential
for the farm business, and ultimately the farm household, to
experience financially devastating losses also increases. The
possibility of such losses helps to explain why commercial farm
businesses enroll a greater share of their cropland in a Federal
crop insurance program.
Health Insurance Coverage
As with U.S. households in general, an important risk faced by
farm households is illness or injury to household members and the
potential for medical expenses to drain the household's resources.
Health insurance provides individuals or groups with a contractual
arrangement for personal medical expenses to be at least partially
covered by insurance companies in return for a fee. Because medical
attention is expensive and often essential for maintaining one's
health, the incidence of health insurance among populations is an
important indicator of their well-being. It also indicates how much
health-related financial risk the household bears.
In 2011, 15.7 percent of the U.S. population had no form of
health insurance. Among members of farm households, only 9.3
percent lacked health insurance.
Most Americans receive health insurance through their employers.
Although farm operators are largely self-employed, the majority of
farm households have an operator or spouse employed off the farm
(see table on health
expenditure and insurance coverage information of principal farm
operator households, by off-farm work, 2011 ). As with the general population, the
most common source of health insurance for members of farm
households is employment-based. In fact, farmers are as likely as
the general U.S. population to receive their health insurance
through an outside employer. Farmers are more likely than the
general population to directly purchase their health insurance from
an insurance company, and less likely to receive health insurance
from a government-sponsored program, such as Medicare or
Medicaid.
In 2011, more than half of farm household members had health
insurance coverage from an employment-based plan. One major reason
that a farmer or rancher would work solely on the farm and not have
access to employer-sponsored insurance through an off-farm job is
the intensive time commitment for some commodity specializations
(see table
on Health expenditure and insurance coverage information of
principal farm operator households, by commodity specialization,
2011 ). An example of this is in
dairy production. Farming is the major occupation for nearly all of
those who specialize in dairy production--significantly more than
the 48 percent across specialties. Compared to the 57 percent of
all farm persons who receive insurance from employer-sponsored
plans, only 36 percent of persons in dairy households do. The lack
of off-farm employment likely contributed to the difference in
health care coverage between persons in dairy farm households and
those in the overall farm household population. In 2011, about 36
percent of persons in dairy households were uninsured, compared to
9.3 percent for all farm persons.
Having health insurance and the source of health insurance are
major determinants of household expenses for health care. The most
expensive type of health insurance is direct purchase. Farm
households with direct-purchase insurance had the highest premiums
of all farm households, more than $6,000 per household. They also
incurred the highest out-of-pocket expenses, spending more than
$2,400 in 2011.