We have just seen the Congress go through the process of writing a new Farm Bill, in which one of the stated objectives was to reduce farm program payments and payment limits because farm programs were benefiting large farms more than small farms. Whether the objective was achieved remains to be seen, but when you look at the financial diversity of farm families, an agricultural policy designed to apply equally to everyone just won’t work.

Why won’t it work? USDA economists Ashok Mishra and Hisham El-Osta researched the variability in farm household assets and debt, and reported that today’s farms with income from both agricultural and non-farm sources, combined with a blend of farm and non-farm assets and a blend of farm and non-farm debt make the typical farm family one that is difficult to define and assist with common policies in a Farm Bill. The economists say examination of family wealth is important to the analysis, but it is difficult to measure within the agricultural community. They say two households can have the same income, but one may have substantial asset wealth and a high debt, and the other may have few assets and debt, but farm policy may treat them equally.

Farm households are unlike any other in the country, because they have income from both farming and other employment, assets from farming and from other investments, and debt from farming, and non-farm reasons such as credit cards and a home mortgage. In a recent study, the average net worth of farm families was twice that of the non-farming family. With net worth resulting from liabilities subtracted from asset values, the economists contend the variability in those must be understood for meaningful policy to be written.

The USDA economists say almost 80% of the variability in farm household assets originates from real estate holdings, but the source of the variability changes, once farm size is taken into consideration. Small operations may have variability in assets, but those are primarily non-farm assets. For commercial farms variability in real estate is the major contributor to variability in household assets. Farming contributes nearly 88% to the variation in wealth for large farms and 23% of the wealth for small farms. For large farms, agricultural debt is practically all of the debt maintained by the household, but for small farms, agricultural debt is less than half of the household debt. In USDA’s agricultural region known as the Heartland (which is the central 2/3 of the Cornbelt), the economists say, “A large proportion (50%) of the variability in household assets originates from real estate (value of land and buildings). Further, non-farm assets contribute about 16% to Heartland region household asset variability.”

The variability of assets is also distinct between small and large commercial farms. For small farms the assets are in non-farm assets (59%), stocks and mutual funds (10%) cash and retirement accounts (8%). But the variability for large commercial farms comes from land and buildings (75%) and non-farm assets (10%). The economists contend, “Farm assets are strongly and positively associated with total farm household wealth. It appears that the higher the households’ commitment to farming and the higher the proportion of farm assets to total assets, the higher is the contribution of the farming component of assets to the overall variation of total farm household assets.”

Among the findings of the study:
1) Despite having low farm income, many farm families have a substantial amount of wealth or net worth (when assets from farm and non-farm sources are included) compared with average non-farm household wealth.
2) The portfolio of assets held by farm households is heavily weighted toward farm assets relative to housing and other non-farm assets. In contrast, the average non-farm household asset portfolio is most influenced by home values.
3) The diversity in sources of farm household wealth suggests households will respond differently to policy measures.
4) Because farm households are so diverse in their resource base, it is clear that no one policy action focused on the economic well-being of farm households will affect all households in the same way.
5) Farm households’ well-being is affected by changes in real estate values and long-term debt. Any changes in the amount and prices of land, and in the interest rate on long-term debt, will affect the economic well-being of farm households.

Summary:
Farm policy writers have long tried to create farm programs that affect farms equally, but when financial parameters are applied, the wide diversity in agriculture makes the task almost impossible. The blend of agricultural assets, liabilities, and wealth will be quite different between large commercial farms and farms that are smaller operations designed for residential or quality of life purposes. The variability in the farm economy will have different impacts on every farm, as will a uniform farm policy.