Sunday, February 25, 2007

Farm economics from the Dept. of Commerce...

One of my gripes with the USDA is it fails to put farm economic figures in context with either the nation or the globe. My experience is most farmers have wildly inflated ideas of their contribution to their local and national economies.

Here's how to find out for yourself. Click here for county level income numbers. (How the people in your county earn a living)
  1. Click on CA05 - Personal income and detailed earnings by industry
  2. Choose NAICS data for the most recent. The BEA switched industry categories a few years ago - this is the new list.
  3. Pick a state, click next.
  4. Pick a county (or the whole state) and year (s), hit "Display"
Line 81 is farm earnings. Compare that with total earnings (line 10). Also compare with line 47. Transfer payments are mostly SS checks, Medicaid, federal pensions, etc.

In almost all rural counties I have looked up transfer payments are 3-10 times higher than farm earnings.

I was personally stunned when I first looked up Edgar County, IL. It's covered with farms and has no big city, and yet farms contribute only about 8% of the local income. Meanwhile, transfer payments bring in 21%.

My conclusion: to save rural America, save Social Security.

Many producers like to argue that just means farmers aren't getting paid enough, but crimony - how high would prices have to get to move it up much? For example, in IL farms contribute all of 0.4% of the Gross State Product.

Some also say we should judge by gross income (sales), but then you would have to judge other industries the same way. Besides, why are we so proud of how little we keep of the dollars that flow through our farms? The BEA sets the rules for measuring economic clout, and it uses your schedule F. Farmers can't play the game AND referee too, ya know.

Illinois is not about farms. Neither is IA, IN, ND, SD, MN, CA, NJ, etc. Look it up for yourself.

As a rule farmers are upset when I share these numbers. I have been accused of "talking down" farmers. If the facts are disrespectful to our image of ourselves, my assertion is the problem is with our self-image.

We don't have be the center of attention to be a vital part of a community or state economy. In fact, when we stop insisting it's all about us, we improve our chances of being truly happy.


Bill Harshaw said...

Interesting points. Based on a fast visit to the Edgar County link, I'd guess that farm program payments also fall into the "transfer payments" category.

You don't mention the "multiplier effect"--that somehow one dollar earned on the farm generates X dollars of economic activity in the county. It makes sense to me, though I'm no economist. And wouldn't a dollar of Social Security also have a multiplier effect?

John Phipps said...

bill: This data is derived from income tax info, so farm payments are already included in farm income. To really see the stuff for your county, run through the first link.

As for the multiplier effect, please check for later post.

Anonymous said...

Intersting read. The U if Illinios did a study that found that Sch F can misrepresent farm income by as much as 80%. As I recall the descrepancy was a result of Sec 179/Depreciation and the lack of an accrual basis used to report income. Thoughts??

John Phipps said...


I'm surprised it isn't higher than that (80%). Cash accounting allows us to postpone, but not avoid taxes by increasing inventories and prepaying expenses. I am ambivalent on the merit of this idea, and am too lazy to switch to accrual.

But it all comes home to roost. You end up in a year with all income and no expenses. My guess is this happens about age 59.

Still as a close friend once pointed out, "After you pay your taxes, you get to keep all the rest!"