Dossier
Farm income
Eva-Charlotte Weber, Raphaela Ellßel and Heiko Hansen | 30.08.2023
Farm incomes are subject to strong fluctuations: The prices a farm can achieve for a liter of milk or a kilo of meat change from year to year - as do the prices for seed, fertiliser, feed and energy. We analyse income development over time.
Based on the German Farm Accountancy Data Network (German FADN), we can assess the economic situation and development of agricultural holdings in Germany. This database comprises the accounting data of representatively selected farms. We also use the German FADN for policy impact assessments - for example, how a new design of CAP direct payments will affect farms.
Data basis
The beginnings of the German FADN date back to the 1955 Agriculture Act. The German FADN is of great importance for policy impact assessment and evaluation, because it is the only representative data basis that includes not only farm structure and production characteristics of agricultural holdings, but also but also yields, expenses and revenues. Currently, about 8,000 farms provide their accounting data.
German FADN data are also a central component of the farm programming model FARMIS, which we use to model agricultural activities in detail at farm level and make projections. Using individual weighting factors, we can also extrapolate our results to the represented population under consideration.
German FADN data are available to external researchers under certain conditions and in compliance with strict data protection requirements.
On average across all farms, farm income per unpaid (family) worker has increased slightly over the last 15 years. However, there have been considerable fluctuations: between about 27,000 euros in the economic year 2005/06 and 44,500 euros in 2017/18.
Over the past 15 years, nominal incomes have risen by an average of around 2.5% per year, with significant annual fluctuations, while real incomes have risen by only 1% per year. This difference is due to the fact that the inflation rate and thus the actual purchasing power is not taken into account in the nominal income development, but in the real income development.
This average view across all farms does not consider the large differences in agriculture, e.g. due to specific farm types and sizes and site-specific factors.
The incomes between the different farm types differ significantly in some cases. On average over the period considered, arable farms had the highest income per unpaid (family) worker of all farm types. The lowest income by far can be observed for other grazing livestock farms. The income of horticultural farms has risen sharply in recent marketing years.
The strong income fluctuations on German granivore farms are remarkable. These farms show the lowest income of all farm types in the economic year of 2007/08 and the highest in the economic year of 2019/20. One reason for the exceptionally good economic year of 2019/20 was the strong demand for pork from China as a result of the outbreak of African swine fever (ASF) there. In the following economic year, demand for pork from Germany fell sharply again, as the first cases of ASF were also detected here. The income of granivores farms therefore fell sharply again and recovered slightly in the 2021/22 economic year.
From the so-called boxplots in the figure it becomes clear, that all farm types show a large variation in income. It is particularly high for arable farming, horticulture, pomiculture and granivore farms. On average over all farm types and over the three economic years 2019/20 to 2021/22, the average income was 46,000 euros per unpaid (family) worker was achieved across all farms.
The boxplots illustrate how the income is distributed. For example, the left-hand boxplot reveals that about half of all farms earned an income of less than 33,500 euros (median) and about a quarter of the farms earned less than 13,500 euros (25% quantile). In contrast, the most successful quarter of the farms (75% quantile) generated an income of more than 63,000 euros. 10% of the farms lost income of more than 3,800 euros per unpaid (family) worker (10% quantile), while the income of the most successful 10% of all farms was more than 110,000 euros per unpaid (family) worker (90% quantile).
Direct payments are a central issue of discussion in the debate on the future direction of the Common Agricultural Policy (CAP). The analyses of the farm accounts from the German FADN show that direct payments are an important component of farm income. On average over all farm types and over the last three economic years (2019/20 to 2021/22), they accounted for 38 % – just over a third of income. The share of direct payments in income fluctuates from year to year as incomes fluctuate. Given that direct payments are decoupled from production and are area-based they are relatively constant over time.
The share of direct payments in income per (family) worker is highest on arable and other grazing livestock farms. On farms with the highest value added per hectare – horticulture, wine and other permanent crops - their share is the lowest.
Another frequently used form of presentation is the share of direct payments in farm revenues. According to this, they account for an average share of nearly six percent across all farms. In farms with a high value added per hectare - such as horticulture, wine and other permant crops - the share of direct payments in farm revenues is significantly lower than in arable and other grazing livestock farms.
Given the large share of direct payments in farm incomes, it is often argued that they are of existential importance for the continuation of farming. However, in the case of rented land, a large part of the area-related direct payments is transferred to the land owners. Empirical studies show that about 50 to 60 percent of the direct payments are likely to capitalized in land rents. This “capitalization effect” is greater the higher the proportion of rented land and the longer the rental agreements still run. Herefore, a reduction or redesign of direct payments should be planned over several years and should be progressive and reliable, so that a gradual “reversion” of the capitalization effect can take place.
The income situation of farms cannot be adequately assessed by solely evaluating German FADN data. Farm structures and interrelationships show a (more and more) complex nature. Especially in regions with intensive livestock farming, there are often several legally independent farms that are managed by one family (or by a family network). Splitting up or setting up new businesses often takes place here in order to avoid the commercial nature of the entire holding and to be able to use the advantages of special agricultural tax rules.
In order to be able to assess the farm household income situation properly, the income from all single farms that belong to the family managing the farm should have to be considered - including the non-agricultural and/or commercial income. Moreover, many farms are diversified and have several branches (e.g. biogas, photovoltaic, wind energy plants), which incomes have to be measured in a comprehensive analysis.
This means that the actual income situation of farm households is only partly represented by the German FADN and tends to be underestimated. The farm incomes alone are only of limited use for the analysis and assessment of farm household income. In this context, it should also be kept in mind that farm assets have grown considerably in recent years due to the very sharp rise in land prices.
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