Alternative enterprises boost farm incomes

Close to a third of U.S. farm households generate income by engaging in off-farm business ventures and on-farm activities independent of commodity production, according to a new report from USDA's Economic Research Service. Of the 687,000 farm households pursuing on-farm or off-farm non-commodity businesses, over 290,000 engaged only in on-farm diversification activities in 2007, earning an average of about $14,400 per farm from these activities.

On-farm diversification activities described in the report include:

  • Custom work in which farmers rent out their technical skills and farm equipment to other farm operations.
  • Agritourism such as guided farm or ranch tours and other entertainment services, hospitality services, and outdoor recreation including hunting, fishing, and bird watching.
  • Sale of forest products, such as firewood and timber.
  • Direct-to-consumer sales of food commodities through farmers markets, on-farm stores, roadside stands, and pick-your-own
  • Operations.
  • Sale of value-added goods produced on the farm, such as jellies and jams, sauces, and other prepared items.
  • Sale of food commodities through community-supported agriculture buying clubs.

Family farms involved in on-farm diversification tend to be on the larger end of the scale, averaging over 660 acres, which is twice the average size of farms not engaged in any alternative entrepreneurial activity. Those alternative enterprises do require extra work, and the study shows farm households engaged in on-farm diversification devoted an average of 1.4 full-time equivalents (FTEs) to the total farm operation, almost 50 percent more than an average of 0.9 FTEs for farm households not engaged in such activities.

Type of operation clearly plays a role in determining its ability to engage in particular on-farm diversification activities. For example, custom work generated the largest share of non-commodity income for field crop producers, amounting to almost $1.5 billion in income, compared with $860 million in income for livestock producers from custom work. Livestock producers however, earned almost 60 percent of agritourism dollars in 2007.

On-farm diversification allows some farmers and ranchers to capitalize on their skills and resource base to earn additional income, but off-farm businesses are, on average, more lucrative. In 2007, about 396,000 U.S. farm households operated off-farm businesses. The report refers to these as "portfolio entrepreneur households." These operations earned incomes averaging $140,200 per year, nearly twice the average of $72,610 for farm households not engaged in alternative income-generating business activities in 2007.

Read the full report from USDA/ERS.