Farm Household Income Volatility: An Analysis Using Panel Data From a National Survey

Abstract

Farm income is highly variable, and this variability can affect household welfare, agricultural production, and environmental quality. Federal agricultural policies have long sought to shelter farmers from income fluctuations. The 2014 Farm Act focused attention on risk reduction by creating new programs tied to fluctuations in prices, yields, and revenues. ERS researchers use a large panel dataset created from 18 years of the USDA’s Agricultural Resource Management Survey (ARMS) to provide new information about the extent of farm household income variability. Analysis compares total income volatility of farm and nonfarm households; for farm households, it compares the volatility of farm and off-farm income and examines how income volatility differs across types of producers and farms of different sizes. A regression analysis explores the determinants of household income volatility and identifies trends in volatility over time. Researchers disaggregate total household income variability into farm, off-farm, and other components to trace how each component contributes to the overall volatility. Lastly, researchers look at the effects of U.S. Government programs on farm household income variability and estimate the risk-reducing benefits of these programs.