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The importance of off-farm income to servicing farm debt

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  • Brian C. Briggeman
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    Abstract

    U.S. farm income is on the rise. Yet, farm income alone is often insufficient for many farmers to service their debt. In fact, for many farm operations off-farm wages have become their main source of income. In 2008, 90 percent of all income for farm households came from off-farm activities. ; This boost in income has become vital to farm households however, it comes with significant risk. Farm operations are now exposed to economic stresses that arise outside the farm gate. In particular, rising unemployment in the local community can elevate a farmer’s risk to income loss. If farmers lose this income, their financial stress would rise to the point that many would be unable to service their debt. The risk of off-farm income loss can be heightened if the local economy relies on a shrinking industry, such as manufacturing. Moreover, the financial stress associated with exposure to local unemployment levels can be much greater for some farm operations than others, depending on their size, type of enterprise, and age of the operator. ; Briggeman explores the effect of labor market stress on a farmer’s ability to service debt. His analysis finds that financial stress among farmers intensifies as local unemployment rates rise especially among small farmers, livestock producers, and young farmers that operate near manufacturing areas.

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    Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

    Volume (Year): (2011)
    Issue (Month): Q I ()
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    Handle: RePEc:fip:fedker:y:2011:i:qi:n:v.96no.1:x:1

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    1. Charles A. Towe & Mitchell J. Morehart, 2009. "Credit Constraints: Their Existence, Determinants, and Implications for U.S. Farm and Nonfarm Sole Proprietorships," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 91(1), pages 275-289.
    2. Parker, Timothy S. & Kusmin, Lorin D. & Marre, Alexander W., 2010. "Economic Recovery: Lessons Learned From Previous Recessions," Amber Waves, United States Department of Agriculture, Economic Research Service, United States Department of Agriculture, Economic Research Service, March.
    3. Allen M. Featherstone & Laura M. Roessler & Peter J. Barry, 2006. "Determining the Probability of Default and Risk-Rating Class for Loans in the Seventh Farm Credit District Portfolio," Review of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 28(1), pages 4-23.
    4. Ashok K. Mishra & Barry K. Goodwin, 1997. "Farm Income Variability and the Supply of Off-Farm Labor," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 79(3), pages 880-887.
    5. Gibbs, Robert & Kusmin, Lorin D., 2005. "Low Skill Employment and the Changing Economy of Rural America," Economic Research Report, United States Department of Agriculture, Economic Research Service 33595, United States Department of Agriculture, Economic Research Service.
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