RUNNING a successful farming operation requires a number of different skills, and according to data from the U.S. Department of Agriculture, farmers with off-farm jobs most commonly apply those skills in management and professional occupations.
A report released this month from USDA's Economic Research Service (ERS) shows that roughly 36% of farm operators and their spouses reported working in such careers.
According to ERS, 91% of farm households have at least one family member working an off-farm job, and the median income of farm households in the U.S. has consistently exceeded the median income of households in general over the past 15 years.
In 2011, roughly 56% of farm families' non-farm income came from off-farm jobs, on average, and a 2011 white paper from the Federal Reserve Bank of Kansas City suggested that as much as 90% of all income for farm households came from off-farm activities.
ERS researchers, delving into the question of what farm operators and their spouses do in their off-farm jobs, found that a significant portion (36%) were employed in management and professional occupations. This share is much larger than for non-metropolitan area workers in general, at 25%, and is even larger than for metropolitan area workers at 32% (Figure 1).
Furthermore, the study found that, among farm couples where the farm operator, spouse or both reported working off-farm, operators of larger farms and their spouses reported the largest shares of employment in management and professional occupations, "suggesting that many of them are able to apply the knowledge and skills used in managing a sizeable farm operation to other areas of employment."
As a corollary to the findings, the report notes that farm operators and spouses engaged in management and professional careers also tended to have more formal education than members of other farm households with off-farm occupations.
Of farmers with off-farm jobs, ERS reported that just 17% of those with only a high school diploma had management or professional careers versus 56% of operators with a college or advanced degree.
Not surprisingly, farm operators working in management and professional jobs reported generally higher wages than farmers working in non-management roles: Those in management roles averaged $40 per hour — $8 per hour more than the next-highest paid off-farm occupational group.
Operators with only a high school education were most likely to have an occupation in production, transportation and materials moving (32.3%), while farm operators' spouses were most likely to work in service roles (45.3%).
Looking at the industries in which farmers and farm spouses were employed off the farm, ERS found that farm operators primarily worked in the construction (18.7%), agriculture and natural resources (15.3%) and manufacturing sectors (12.9%). Spouses, meanwhile, were most likely employed in education (22.3%) or health care (19.7%).
By size of operation, operators of farms with less than $50,000 in annual sales had a larger share of jobs in manufacturing and construction, while operators of farms with higher annual sales had the largest shares of jobs in the agriculture and natural resources industry.
In general, USDA expects farm household incomes to trend lower in 2013, with the projected median total farm household income forecasted to decrease by 2.5% to $66,989. Given the broad definition of what constitutes a farm, ERS said many farms are not profitable even in the best years, with 2013 median farm income expected to fall to a loss of $2,300 (Figure 2).
Despite the decline in farm income, the median estimate of off-farm income is projected to increase 1.8% on the back of a slowly but steadily improving U.S. economy and improved job prospects.
Redefining farm types
Earlier in the year, ERS released an update to its farm typology classifications, reflecting commodity price inflation and the shift of production to larger farms.
The original farm typology was developed 15 years ago to classify farms into groups based on gross farm sales and the primary occupation of their operators; the new classifications do much the same, but they are based on gross cash farm income rather than on gross sales.
Under the new classifications, small farms are now classified as those with less than $350,000 in gross cash farm income, up from the original $250,000 cutoff.
To adjust for the shift in production toward larger farms, ERS added two groups to the typology for farms with more than $1 million in income and added a midsize group for farms with between $350,000 and $999,999 in gross cash farm income.
The updated look at farm size found that 97.7% of farms are family farms, representing 87.7% of all U.S. agricultural production. Based on the new typology, more than 90% of U.S. farms are small family farms; even so, those farms represent just 21% of total farm production.
Of the eight classes of farms under the new typology, the largest group in terms of sheer size was small farms with an operator who had a primary operator off-farm occupation, at 43.5%.
In terms of the total share of farm production, on the other hand, the most significant group was the large farm segment, with $1-5 million in gross cash farm income. This group represented 28.2% of total production, followed closely by midsize farms (those with $350,000-999,999 in income) at 25.8% of production.
While larger farms make up a larger share of production, there are relatively few of these farms: only 40,456 farms meet the new "large farm" classification, and only 3,473 are estimated to earn more than $5 million annually in net cash farm income. Under the original typology, "large farm" was defined as any farm with more than $500,000 in gross sales.
In summarizing its study of off-farm occupations of farm operators, ERS noted the importance of human capital for agricultural technology adoption and farm management and said that also helped explain why farmers and their spouses often held occupations demanding substantial knowledge and skill.
"Evidence suggests that the gap between wages for skilled and unskilled labor in the U.S. has increased," the ERS authors wrote. "If farm households tend to work in more highly skilled occupations, it could help explain why their incomes have grown relative to the incomes of U.S. households in general."