Chapter XII: Measurement and Composition of Farm Household Wealth

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Chapter XII Measurement and Composition of Farm
Household Wealth
James D. Johnson and Mitchell J. Morehart
Economic Research Service
Rome, Italy 29 June-1 July, 2005
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Why the Long-Standing Interest in Farm-Household
Wealth Measures

• At the Household Level
• Source of Income, Expenditure for the Household
• Measure of Economic Resiliency, Potential Source
  to Support Consumption
• Insight into Farmers Wealth Building, Portfolio
  Diversification
• Retirement and Financial Security in Later Life
• More Comprehensive Measures of Household Economic
  Well-Being
• At the Farm Business Level
• Asset Ownership and Management
• Financial Position, Solvency, Liquidity,
  Profitability
• Access to Credit Markets

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Constructing an Estimate of Wealth (Net Worth)
Net Worth Equals the Value of all Real and
Financial Assets Less the Sum of all Debts for
the Same Time Period
Balance Sheets for Households are Constructed
Around the Accounting Equation
Net Worth Total Assets Total Liabilities
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Farm Households Allocate Own Resources to
Multiple Uses
Farm Operation
Non-farm Economic Activity
Farm Operator Household Resources

• Output/Revenue
• Crop
• Livestock
• Conservation
• Environment
• Government
• Services
• Other

Self-employment Another Farm Another
Business Wage and Salary Saving Investment

• Labor
• Managerial Skill
• Entrepreneurial Capacity
• Financial Assets
• Physical Assets

Purchased Inputs
Capital Investment
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Farm Household Net Worth (Wealth) Originates From
Farm and Non-Farm Sources
Non-farm Assets
Farm Assets
Cash, checking, CDs, money market accounts IRA,
401K, Keogh and other retirement accounts
Corporate stock, mutual funds, and cash value of
life insurance Other non-farm assets
Land and buildings Farm equipment Financial
assets Other farm assets
Non-farm Net Worth equals Non-farm Assets
minus Non-Farm Debt
Farm Net Worth equals Farm Assets minus Farm Debt
Farm Debt
Non-farm Debt
Real estate debt Non-real estate debt Short-term
debt Long-term debt
Farm Household Net Worth equals Farm Net Worth
plus Non-farm Net Worth
Credit cards Car payments Non-farm business debt

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Sources of Farm Household Net Worth
Total Farm Household Assets were 633,525 in
1999Farm Assets were 435,438 Non-farm Assets
were 198,087
Total Net Worth of Farm Operator Households was
563,562 in 1999
389,498
174,064
Agricultural Resource Management Survey, 1999
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Non-farm Assets of Farm Operator Households
41,598
61,407
51,503
43,579
Agricultural Resource Management Survey, 1999
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Household Wealth Estimates Enable Analyses of
Economic Condition and Well-Being

• Capital Gains as Income Realized Gains
  or Losses Unrealized Gains
  or Losses
• Household Savings Savings (household
  income expenditures)
  (new funds debt repaid)
  (difference in net worth or change in asset
  value transfers)
• Measure of Household Economic Well-Being
  Level of Wealth Distribution of Income
  and Wealth Econ. Well-Being Indicator
  (Household Income Annuity Value of Net Worth)
• Intergenerational Transfer of Assets
• Farm Household Liquidity
• Household Portfolio Composition

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Concluding Comment
The Handbook recognizes that farm households may
have multiple sources of farm and non-farm assets
and/or liabilities. Accurate and complete
estimates of net worth measures take into account
both farm and non-farm sources of wealth, and
recognize that farm wealth may not be owned
entirely by farm households.
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Rural Farm Household Balance Sheet

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