Old MacDonald had a farm—and a tourist destination, and a side business
December 27, 2012
WASHINGTON—A report released by the U.S. Department of Agriculture this fall provides a detailed look at the varied business models being used by American farms.
In 2007, close to a third—or 686,600—of all U.S. farm households engaged in 791,000 income-generating activities other than farm commodity production, creating $26.7 billion in household income.
On-farm diversification activities and off-farm business ventures each accounted for about half of those income-generating activities, but off-farm businesses had the largest impact on the local economy, generating about 80 percent of total non-commodity business income earned by farm households.
The farms operated by households engaged in alternative (non-commodity) entrepreneurial activities produced almost 40 percent of the total value of U.S. agricultural production in 2007. That, the USDA Economic Research Service report notes, suggests that households associated with farms of all sizes engage in alternative entrepreneurial activities, not just those associated with part-time or “hobby” operations.
More than 290,000 farm households engaged exclusively in on-farm diversification activities in 2007, earning about $14,400 per farm from those activities. Custom work, direct-to-consumer sales and agritourism activities accounted for almost 90 percent of the total amount of income earned from on-farm diversification activities. Farm households engaged in that diversification devoted almost 50 percent more operator work time to the farm than farm households not engaged in such activities. They also tended to operate larger farms. “Farm households engaged in on-farm diversification appeared to use their larger physical asset base more intensively to support their on-farm business ventures,” the ERS said.
The agency also found that, in 2007, 395,600 U.S. farm households operated an off-farm business. Multi-enterprise farm households typically earn incomes greater than those of farm households not engaged in such activities. The ERS noted that “portfolio entrepreneur households”—those operating off-farm businesses in addition to their farms—earned incomes nearly twice the average for farm households not engaged in alternative income-generating business activities.
In 2007, off-farm businesses generated $21.6 billion in profits based on estimated sales of $111.6 billion, contributed an estimated $54.6 billion in value-added income to the gross regional products of their local economies, and paid out $24.5 billion in wages and salaries to 853,100 part-time and full-time employees. Excluding sole proprietors, off-farm businesses employed six workers, on average, from local nonfarm labor markets.
In short, the ERS report concludes, “farm operators and their households have a choice in how their entrepreneurial and managerial skills are used to earn business income.”
The 2007 U.S. Census of Agriculture found that slightly more than half of Virginia farmers said their primary occupation was work other than farming.
The ERS report’s findings are not surprising, and they speak to farmers’ tendency to be resourceful and to utilize their management skills in other activities, said Tony Banks, a commodity marketing specialist for Virginia Farm Bureau Federation.
“Many farm families have relied on off-farm income for decades,” Banks said. “It’s interesting to see the extent to which on-farm diversification had increased by 2007. Given the tremendous interest farmers have expressed in value-added enterprises since then, one would expect continued growth within that income category.”
Contact Banks at 804-290-1114.