Policymakers are under constant pressure to alleviate financial stress, mainly associated with farm business income, on farm households through government farm program payments. The 1996 FAIR Act signaled the end of these payments and Congress decided that agricultural policy should be more market oriented. Using the Gini coefficient concept and a large farm-level dataset, this study investigates the impact of government payments on income inequality among farm households in nine farming resource regions of the U.S. Results indicate that distribution of income among farm households in the Fruitful Rim region was above the level of dispersion for all U.S. farm households; however, income inequality in the Heartland region was below the level of dispersion for all U.S. farm households. Finally, income from government farm programs helped reduce total income inequality in the Heartland and Northern Great Plains regions, while income from off-farm wages and/or salaries played an important role in reducing total income inequality in Basin and Range and Fruitful Rim regions of the U.S. farm sector.
Results of this study show a reduction in farm household income inequality over the period of the FAIR Act, 1996–2001. This decrease was associated with an increasing trend in median household income. Despite the improvement in median incomes and reduction in income inequality, income dispersion remained pervasive. Among the factors that contributed the most towards income inequality was ‘income from farming and all other sources.’ A marginal increase in this component was found to exacerbate income inequality, while marginal increases in the other components, ‘government payments’ and ‘off-farm wages and/or salaries,’ lessened inequality. The impact of income from ‘government payments,’ due to its small share in total income, was relatively mild, though its impact increased over the period of the FAIR Act.
Differential impacts of the contributing components by location were found. Of nine U.S. production regions, the income distribution among farm households in the Fruitful Rim was more dispersed than that for all nine regions combined during 1996 and 2001. In contrast, income inequality in the Heartland was for both years below that of the entire U.S. Results show that in the Northern Great Plains, the government payments contribution to inequality was the highest among all regions in 1996 and declined in importance to second place after the Heartland in 2001. Further, a marginal increase in off-farm wages and/or salaries decreased total income inequality. In the Heartland, marginal increases in ‘government payments’ and ‘off-farm wages and/or salaries’ would lower total income inequality.
If the purpose of farm policy is to raise farmer incomes and standards of living, then policy provisions need to be reconsidered as changes occur in farm households and businesses. The close association of farm households and their businesses that once allowed the income of the farm and the farm household to be considered as synonymous no longer hold. These results show the importance of recognizing the heterogeneity that exists among farm households by both region and participation in off-farm employment. In some regions, government payments play an important role in decreasing income inequality within farm households. Thus, reductions in government payments may have an adverse impact on the overall distribution of farm household income in some farming regions. Policies may need to be designed to consider work choice decisions and income generating abilities of farm families. Rural economic development efforts to stimulate off-farm employment opportunities through stable employment and higher wages will lead to decreased farm household income inequality in some farming regions.
Generally, increased government payments to farmers leads to decreased income inequality. Previous work has shown the positive correlation between income equality, stability, and overall economic well-being of a region though increased business. Considering this, increased government payments would serve to increase stability and economic well-being of farmers, as well as expand and increase the viability of agricultural businesses that supply inputs and purchase product. Increased agricultural business viability, in turn, would yield greater employment opportunities, some of which could be filled through off-farm employment. Results of this study suggest increased off-farm employment opportunities would further serve to stabilize farm operator household income. Thus, if major objectives of farm policy are to increase economic well-being and stability, our results suggest that increased government farm programs would help in meeting this end.
The whole U.S. results showing government programs as an equalizer of farm household income may be further seen in the regional analysis. We found that the Fruitful Rim had the highest dispersion in farm household income, where crops grown include a number of fruit and vegetables, none of which have historically been supported by extensive government payments. It is of interest that the 2007 Farm Bill has new provisions for government payments for specialty crops, which would include some fruit and vegetable production. Thus, if increased farm payments to these crops occur, then the Fruitful Rim may experience an increase in income equality across farms. Future research analyzing the influence of the 2007 Farm Bill on income inequality will, therefore, also benefit from extensive regional analysis.
