Estimating wealth of self‐employed farm households

Purpose - The purpose of this paper is to examine the factors that are likely to influence their wealth accumulation. Characteristics of the farm, operator, family and potential successors that contribute to wealth accumulation will be identified. An additional objective of the paper is to determine if there was a discernable difference in the level of wealth accumulation between the two groups of farm households. Design/methodology/approach - The paper uses 2001 Agricultural Resource Management Survey data and a multivariate regression procedure. In particular, the study estimates two models one for those farm households whose wealth resides primarily in the farm and another for households with both farm business and nonfarm wealth. Findings - Results from this study show that differences exist in wealth accumulation among the two groups of farm households based on factors such as farm organization, farm size and farms specializing in Livestock and other crops. Results also show a classic inverted U‐shaped wealth/age profile for the two groups of farm households considered in this analysis. However, the disinvestment tends to start at an earlier age for the group of households whose wealth resides primarily in the farm sector, 65 years compared to 82 years for farm households with wealth in both (farm and nonfarm) sectors. Findings from this study show a positive correlation between education and wealth accumulation for both groups of households. Practical implications - Results point to the importance of land in the wealth portfolio of farm households and the influence of farms locations on wealth accumulation. The findings highlight the importance of maintaining a stable agricultural economy, particularly for farm households who derive their wealth from farming, with accompanying effect on land markets and the subsequent effect on the equity position, and debt servicing capacity of farm households. Originality/value - This study differs from the more general agricultural finance and farm income literature in several ways. First, none of the studies in the literature has estimated the wealth of self‐employed households in general and farm households in particular. Second, since farm households collect wealth via farm and nonfarm sources their wealth accumulation method and motives are different than all other households. Third, unlike previous studies, the analysis here is conducted on a national farm‐level data with the unique feature of a larger sample than previously reported, comprising farms of different economic sizes and in different regions of the USA.