Income and Wealth in Context
- Farm household income compared with U.S. household income
- Composition of farm operator household off-farm income
- Farm household wealth and income
Since the 1980s, ERS has reported an income measure for farm operator households comparable to the U.S. Census Bureau's Current Population Survey measure for all U.S. households. (The income measure is, generally, net money income from farm and off-farm sources, except that farm depreciation is included as an expense. See glossary for more details.) Farm household income is reported for the households of the principal operators of family farms (the 99 percent of farms where the majority of the business is owned by the operator and individuals related to the operator by blood, marriage, or adoption). Median total farm household income has exceeded the median U.S. household income in every year since 1998. However, the gap between median farm and U.S. household income has varied, increasing through the early 2000s then decreasing from 2006 through 2008. This gap widened in the early 2010s, before narrowing again in recent years.
Because the broad USDA definition of a farm includes many establishments with little or no agricultural production, the median tends to reflect the situation of these small farms, which is often quite different from that of farms with substantial agricultural production. (See the chapter on Farm Household Income (Historical).) In 2016, median farm operator household income exceeded median U.S. household income by 29 percent ($76,250 compared to $59,039).
For more on comparisons between all U.S households and farm households, see the Farm Household Income and Characteristics data product table for historic data on mean and median farm operator household income and ratios of farm household to U.S. household income.
Farm Business Income Compared with U.S. Self-Employed Households
While the median income of farm households has outpaced that of all U.S. households in recent years, operating a farm business carries considerable risk. Farm profits are subject to significant fluctuations and the income volatility of farm households is greater than that of all U.S. households. Therefore, it is useful to compare incomes of "farm business" households (households that report farming as their primary occupation, plus larger-sized commercial farms) with self-employed households, using estimates from the U.S. Census Bureau's Current Population Survey. Median farm business household income has remained below the income of these self-employed households since 1996. However, the gap between median farm and self-employed households has varied and has narrowed considerably during this period. Over the past 20 years, farm business households have seen an increase in their median incomes after adjusting for inflation. In 1996, the median income of farm business households was $35,166, compared to $76,483 for self-employed households. By 2016, the median income of farm business households had increased to $64,929, compared to $84,459 for self-employed households.
Since the majority of farm operator households consistently incur a net loss from farming activities, most farm operator households depend on nonfarm income to cover at least some portion of their living expenses. Of the total off-farm income earned by all farm operator households, the majority (58 percent) comes from wages and salaries of household members (operators, spouses, and others), followed by transfers (e.g., Social Security) (18 percent), and earnings from nonfarm businesses (12 percent).
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 (net worth or equity) 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 demonstrate the strong relationship between income and wealth, farm households are divided into four groups based on relative levels of income and wealth. The estimated median levels of U.S. household income and wealth are used to divide low from high. Median income (or wealth) is the level at which 50 percent of households have greater income (or wealth) and 50 percent have less. In 2016, 62 percent of farm households were in the high-income/high-wealth category, and 36 percent were in the low-income/high-wealth category.
Farm and other U.S. households differ in the pattern of wealth compared to income. In 2016, less than 3 percent of all farm households—in contrast to 50 percent of all U.S. households—had wealth levels that were lower than the estimated U.S. median household level. The 97.5 percent of farm households with high wealth are split into two groups, with many more households 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 significant capital assets, like farmland and equipment, are generally necessary to operate a successful farm business. Also, households with self-employed heads tend to have greater wealth than the average U.S. household. Increasing farm real estate values coupled with several years of high farm incomes have helped maintain and increase farm household wealth levels. In 2016, the typical farm household had nearly $900,000 in wealth. Households operating commercial farms had $2.8 million in total wealth at the median, substantially more than the households of residence or intermediate farms.