Suggested citation for linking to this discussion:
U.S. Department of Agriculture, Economic Research Service. Farm Household Well-being: Glossary, December 1, 2022.
This glossary provides working definitions of key terms and a better understanding of how these concepts are applied in estimating farm household income and wealth.
- Farm operator and principal farm operator
- Family farm
- Farm operator household
- Farm operator household income
- Farm operator household wealth
- Farm typology
- Commodity specialization
- Disposable personal income of farm and nonfarm residents
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 (NASS) 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 less than $1,000 in sales but with points worth at least $1,000. Point farms tend to be very small. Some, however, may normally have much higher 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 2017 (USDA, NASS. 2017 Census of Agriculture, United States, Summary and State Data, Vol. 1, Geographic Area Series, Part 51, April 2019). 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
A farm operator is a person who runs the farm, making day-to-day management decisions. An 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 an operator. Since 2017, demographic information is collected for up to four operators per farm. In the case of multiple operators, the respondent for the farm identifies the principal farm operator, who is the person most responsible for making day-to-day decisions on the farm, during the data collection process.
Historically, it was common for a family to provide all of the labor for a farm and to own all of the farm’s land and capital. 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 across farms. In its program of analyzing the well-being of farm operator households using microdata, the Economic Research Service (ERS) definition of family farms has changed over time.
The current ERS definition of a family farm has been in use since 2005 and is based on data collected in the Agricultural Resource Management Survey (ARMS). According to this definition, a family farm is any farm in which the majority of the business is owned by an operator and any individuals related to them by blood, marriage, or adoption, including relatives who do not live in the operator’s household. Currently, about 98 percent of all farms are classified as family farms (see the Farm Household Income and Characteristics data product table on family and nonfamily farms, by farm size class (gross sales) since 1996).
Even though USDA microdata were first collected in 1984 on the Farm Costs and Returns Survey, the family farm definition was first established in 1988. At that time, 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 (e.g., was a hired manager). Using that definition, 99 percent of farms were classified as family farms in 1988 (see The Economic Well-Being of Farm Operator Households, 1988-90). 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, dropping only as low as 97.1 percent in 2005 and 2006.
Farm Operator Household
Farm operator households are comprised of all people who share dwelling units with the principal operators of family farms. The farm operator household population excludes the households of any operators who do not live with the principal operator and also the households of operators of nonfamily farms. Hence, the current farm household population undercounts the total number of farm households in the United States.
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 the farm business income.
- If a farm is organized as a C-corporation, the profit it 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 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 is 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, ranging 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 household net worth (wealth) = Farm net worth + Nonfarm net worth
Farm net worth = Farm assets (includes the value of land and buildings, farm equipment, financial assets, other farm assets) minus farm debt (includes the value of real estate debt, nonreal estate debt, short- and long-term debt)
Nonfarm net worth = Nonfarm assets (includes the value of cash, checking, CDs, money market accounts, IRA, 401K, Keogh and other retirement accounts, corporate stock, mutual funds, cash value of life insurance, and other nonfarm assets) minus nonfarm debt (includes the value of credit cards, car payments, and nonfarm business and real estate debt)
The ERS farm typology groups relatively similar farms. The complete typology has eight groups, which are defined by the farm’s gross cash income, the primary occupation of the principal operator, and whether the farm is a family farm (see Updating the ERS Farm Typology, EIB-110, April 2013). The collapsed farm typology combines the seven farm typology groups into three groups:
- Residence farms: Farms with less than $350,000 in gross cash farm income and where the principal operator is either retired from farming or has a primary occupation other than farming.
- Intermediate farms: Farms with less than $350,000 in gross cash farm income and a principal operator whose primary occupation is farming.
- Commercial farms: Farms with $350,000 or more gross cash farm income and nonfamily farms.
Note: Nonfamily farms are excluded from the commercial farm group in the reporting of household statistics.
Gross cash income includes the farm’s sales of crops and livestock, government payments, and other farm-related income but excludes revenues that do not accrue to the farm, such as the value of production accruing to share landlords or production contractors.
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 a farm’s value of production is represented by one commodity or a related group of commodities, the farm is included with the other crops or other livestock categories.
Disposable Personal Income of Farm and Nonfarm Residents
This is statistical series that was published by ERS and its predecessor USDA agencies in the Economic Indicators of the Farm Sector eries and the Farm Income Situation series for many years. Both the population and the income concept differ from the concepts used today. In this series, farm residents are those who lived on farms of 1 acre or more in rural areas, including hired workers and all others living on these farms. It excluded the households of operators who did not live on their farms. The disposable personal income series was 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.