Understanding American Agriculture Challenges for the Agricultural Resource Management Survey (2008) / Chapter Skim
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2 Contemporary Issues in American Agriculture
2 Contemporary Issues in American Agriculture
Pages 16-48
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agriculture and farm households. In part because it is so comprehensive -- and unique in that respect -- it has important uses in illuminating contemporary issues in American agriculture.
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To justify this investment, the survey must be responsive to a set of core requirements that address legislative, programmatic, and analytical needs. These core requirements build on those of the predecessor surveys, which conveyed into ARMS when it was established in 1996, and have been supplemented by more contemporary and changing requirements.1 The task of meeting these core requirements translates into a series of priorities for the ARMS program.
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. BEA uses USDA's annual estimates of net farm income to develop its annual estimates of gross domestic product and personal income.
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help determine the net farm income of farmers and ranchers and provide data on the financial situation of farm and ranch businesses, including debt levels; and (4) help determine the characteristics and financial situations of farm and ranch operators and their households, including information on management strategies and off-farm income.
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Starting with the 2005 Costs and Returns Report, ERS has added questions designed to provide a more precise picture of organizational structures in American agriculture. • Farm and farm household linkages to rural communities.
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ERS will complement the ARMS information for farm households with information from the Current Population Survey, the National Health Interview Survey, and other sources to characterize outcomes for other rural households. • Consumption behavior of farm households.
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About half of the farms in the Census of Agriculture have less than $10,000 of gross revenue, and about 9 percent of census farms account for over 90 percent of production. ARMS collects financial and income information in the same questionnaire, allowing analysts to crosstabulate assets, debts, and net income.
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EPA currently makes extensive use of crop budgets, but they are limited in that they are not able to be cross-tabulated with information about actual conditions -- the quantity and condition of crops or the timing of pesticide applications.5 The staff in the USDA Office of the Chief economist primarily works on short-run, day-to-day issues, drawing on resources throughout the department. They frequently make requests to ERS for ARMS data and analysis to produce farm income and cost-of-production estimates, for example: • Calculating farm energy cost-to-output ratios;6 • Highlighting the distribution of farm income, household income, and potential problems servicing debt; • Explaining the distribution of farm program payments; and • Identifying the characteristics of producers purchasing crop insurance.
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USDA reports the following examples of uses by other USDA agencies: • The Agricultural Marketing Service uses ARMS data in deriving its monthly cost-of-production estimates for milk production for the United States and five regions. • The Risk Management Agency has used special tabulations from ARMS to understand levels of farm income and risk management tools used by farmers.
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It sends news releases to about 75,000 members and strongly encourages its members to respond to NASS surveys. With the reauthorization of Farm Bill legislation scheduled for 2007, ARMS may become more vital in terms of measuring costs of production and net farm revenues.
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Large-scale producers have in many cases adopted minimum till or no-till production systems to minimize environmental impacts from runoff of agricultural fertilizers and chemicals. In general, environmental quality interacts with agricultural production, but precisely how and when are not well understood.
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Rural community viability as it relates to production agriculture and the food processing system is an issue of continuing concern. While rural community viability relies on much more than a successful agricultural and agribusiness sector, value-added entrepreneurial activities on farms can be an important element of rural community viability.
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There are substantial differences between the average operating profit margins and rates of returns on assets and equity for smaller and larger farms. Farm households increasingly rely on substantial nonfarm income.
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Environmental Analysis and Natural Resource Management Issues According to USDA's estimate, there are over 2 million farms in the United States covering nearly 900 million acres of land. This land use has wide-ranging effects on the environment.
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. Agricultural production practices result in indirect impacts, or externalities, which can degrade the environment.
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This places great importance on the design and performance of conservation programs, which rely on voluntary incentives to get farmers to adopt environmentally friendly practices. A better understanding of factors affecting program participation and performance of conservation practices would improve the overall performance of conservation programs.
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The second step in an evaluation requires an understanding of how these changes in land use or conservation practices affect the resource of interest: the water quality, air quality, wildlife populations, etc. Thus, to measure the endpoint of interest -- a change in environmental quality -- it is necessary to go beyond a simple accounting of the number of miles of buffer strips installed or conservation tillage adopted.
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, farm costs and returns, and participation in conservation programs. Each of the first three linkages is needed for prospective studies.
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Linking information on farm costs and practices directly with the resource characteristics of the farms is key to assessing retrospective benefits and costs of existing conservation programs. ERS uses ARMS data for conservation policy analysis, including questions on what types of farms participate in USDA conservation programs, how much conservation and commodity program participation overlap, whether conservation compliance reduce soil erosion on U.S.
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Linking administrative data, using accurate geocodes on Phase II for linking GIS-based resource data, and changes to ARMS questionnaires could partially fill these gaps.11 Another attribute of survey data that needs to be considered when assessing its suitability for either prospective or retrospective studies is whether adequate sample size is available to characterize the relevant population. For example, if one is interested in assessing the costs and soil erosion consequences of a particular set of payment options in the Conservation Security Program, it would be natural to identify a watershed as the appropriate population, since the program is implemented watershed by watershed.
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B = Both Phase II field-level Production Practices Report and Phase III whole-farm Cost-of-Production Survey. C = Phase III whole-farm Cost-of-Production Survey only.
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The structure of the American farm continues to evolve, with the delineation between family and nonfamily farms becoming more important, as is the increasing value of off-farm income in measuring farm household well-being. The comparison between the farm and nonfarm populations is complicated by the complexity of determining farm income and wealth and the different sampling frames and geographic coverage of such agricultural surveys as ARMS and such household surveys as the Current Population Survey.
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A later historical series, on the incomes of principal farm operator households, began in 1960. This series was the sum of the annual estimate of the net farm income of the sector and off-farm income of the farm operator household based on Census of Agriculture data.
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It is important to provide different measures of farm income because the use of data derived directly from survey responses varies among them. To obtain an estimate of a farm household's off-farm income, ARMS does ask directly about net income received, even for off-farm business income that may have returns and costs complications similar to those of farming.13 The data show a striking trend of farm operator household income overtaking the incomes of nonfarm households over the past two decades.
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Specifically, for 2005, estimates provided by ERS indicated: • $74 billion aggregate sector-wide net farm income; of which o $49 billion was received by family farms o $9 billion was received by nonfamily farms o $2 billion was received by landlords o $16 billion was received by contractors o $2 billion was discrepancy The panel requested documentation of the discrepancy, which requires detailed analysis to reconcile (see Box 2-1)
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In a presentation to the panel, ERS provided the information shown in Box 2-2, which ties the appropriate statistical indicator for farm income to the concept to be measured.14 14 Presentation by James Johnson, Economic Research Service, September 28, 2006.
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TABLE 2-2 Net Income Derived for ARMS Using Sector-wide Account Procedures, 2004 and 2005 (dollars in billions) 2004 Operators Family Nonfamily Estimates Sector-wide Farms Farms Landlords Contractors ARMS Total Income Accounts Value of crop production 91.5 14.6 5.9 1.3 113.0 125 Value of livestock production 69.6 13.7 0.0 39.7 123..0 124 Revenues from services and forestry 21.1 1.1 11.4 0.0 33.7 34 Value of agricultural sector production 182.2 29.5 17.4 41.0 270.0 283 Purchased inputs 96.6 14.8 1.2 26.2 138.8 137 Farm origin 34.6 8.2 0.3 19.6 62.7 58 Manufactured inputs 28.6 2.5 0.7 31.9 32 Other intermediate expenses 33.5 4.0 0.3 6.6 44.3 48 Net government transaction 4.6 -0.1 -0.7 3.9 5 Farm gross value-added 90.2 14.6 15.5 14.8 135.1 152 Capital consumption 16.3 1.3 2.8 20.4 23 Farm net value-added 73.9 13.3 12.7 14.8 114.7 129 Payments to stakeholders 32.7 5.7 38.5 43 Net farm income 51.5 8.2 1.8 14.8 76.2 85
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TABLE 2-2 Continued 2005 Operators Family Nonfamily Estimates Sector-wide Farms Farms Landlords Contractors ARMS Total Income Accounts Value of crop production 83.8 17.2 5.0 1.8 108.0 113 Value of livestock production 71.5 11.1 0.3 38.4 121.2 127 Revenues from services and forestry 22.0 1.8 12.3 0.0 36.1 36 Value of agricultural sector production 177.2 30.1 17.7 40.2 265.2 275 Purchased inputs 102.0 14.5 1.4 24.6 142.6 147 Farm origin 32.4 5.6 0.4 15.7 54.1 58 Manufactured inputs 31.7 3.2 0.7 0.2 35.8 36 Other intermediate expenses 37.9 5.7 0.3 8.7 52.7 53 Net government transaction 10.0 0.4 -1.8 8.6 16 Farm gross value-added 85.2 16.0 14.4 15.6 131.2 145 Capital consumption 15.6 1.3 2.7 19.5 24 Farm net value-added 69.7 14.7 11.7 15.6 111.7 120 Payments to stakeholders 32.3 7.3 39.6 46 Net farm income 46.7 8.4 1.8 15.6 72.0 74 SOURCE: James Johnson, Reconciling Sector-wide net Farm income and Farm Household income Data Series, ERS, September 28, 2006.
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Beyond the content of questionnaires asking explicit questions for use in the farm income accounts, ARMS produces a farm-level estimate of value-added that is as consistent as possible with sector-wide measures of net value-added and farm income. Weighted estimates of firm-level valueadded can be compared with sector-wide estimates produced from multiple sources of data as a consistency check.
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Farm household well-being, however, is a more comprehensive measure than income, involving off-farm income, which depends on family composition, wealth, labor force participation, and other factors. The concepts and measures used to determine well-being were designed for comparability with Census of Population and other major survey definitions.
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Conservation Effects and Assessment Project A recent attempt to produce an integrated database in order to quantify the environmental effects and benefits of conservation programs is the Conservation Effects Assessment Project (CEAP) , sponsored by the National Resources Conservation Service.
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ARDIS would collect information on participation in farm, rural development, and other USDA and federal programs, enriching it with household well-being information, in a new longitudinal survey of nonfarm rural households and rural-based farm households. The agencies envisioned that ARDIS would allow researchers to isolate the effects of rural development, farm conservation, and marketing programs from one another and from the myriad other forces affecting the economic well-being of farm and rural households.
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UnDeRStAnDing AMeRiCAn AgRiCUltURe new program would track critical indicators over time with special-focus modules to address specific, emerging policy issues; monitor farm and rural household adjustments to changes in policy, prices, and technologies by building on ARMS; and enhance research capacity to analyze, interpret, and apply new agricultural and rural development information. At the time this report was prepared, the funding for development and implementation for ARDIS was not available to the agencies.
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