Heiko Hansen | 21.06.2022
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, fertilizer, feed and energy. We analyse income developments over time.
Based on the German Farm Accountancy Data Network (German FADN), we can assess the economic situation and development of agricultural holdings. We also use the data from the German FADN for impact assessments - for example, how a new design of Common Agricultural Policy (CAP) direct payments will affect farms.
In the German FADN, the farm accounts of representatively selected farms are collected and analysed on a voluntary basis. Around 9,000 farms are currently participating. The original aim of the German FADN was to record the income and expenses of agricultural holdings and thus to obtain information on their economic situation. Since the 1990s, however, the German FADN has been increasingly used for impact assessments of agricultural policy measures, in particular because it is the only representative database that includes not only characteristics of farm structure and production technology but also yields, expenses and revenues of agricultural holdings.
The data from the German FADN are also a central component of the farm programming model FARMIS, which we use to map agricultural activities in detail at the farm level and thus also to carry out ex ante assessments. In addition, our results can be projected to the regional and sectoral level via weighting factors.
The Thünen Institute has reached an agreement with the BMEL that also allows external scientists access to the German FADN. In doing so, the confidentiality of the data is ensured.
Agricultural holdings can be run in various legal forms. In Germany, around 98 percent of farms are organized as family farms or partnerships, while around two percent of farms are cooperatives and , limited companies or stock corporations, i.e. so-called legal persons.
In these legal persons, all labor forces are usually paid. By contrast, in family farms the employed labor forces are paid, while the income of the family labor force arises from the residual of revenues and expenses, i. e. the profit.
The ratio ”profit plus personnel expenses per worker“ takes account of such differences and thus reflects the average remuneration of all labor forces on the holding. However, this indicator is of only limited relevance to the income situation of family farms, as paid labor forces are generally earn less than the holders/managers.
On average across all farms, income per worker increased slightly in agriculture between 2005 and 2020. However, there have been significant fluctuations over the past 15 years, ranging from around 25,000 euros in the 2005/06 economic year to 37,500 euros in the 2017/18 economic year.
For the period considered, the income trend is a nominal growth rate of 1.93 percent per year. The real growth rate was 0.56 percent per year. This difference arises because the inflation rate is not taken into account in the nominal income trend, whereas it is in the real income trend.
In this average consideration across all farms, no distinction is made between paid and unpaid labor forces. The major differences in agriculture, e. g. due to specific production directions, farm sizes and regional location factors, are also not considered.
The incomes between the farm types differ significantly in some cases. For example, fieldcrop farms have a significantly higher average income per worker than milk farms in the economic years studied.
Particularly striking are the strong fluctuations in income over the most recent five economic years among granivore farms, with an extremely good result in the 2019/20 economic year before the outbreak of swine fever in Germany. Current price developments on the pig market suggest another significant drop in income for this group of farms in the 2020/21 economic year.
Overall and in all farm types, a considerable variation in income can be observed. The greatest income variation is found on granivore and fieldcrop farms, while horticultural, other permanent crop and wine farms show a comparatively low variation. Averaged over the three economic years 2017/18 to 2019/20, an income of around 36,000 euros per worker was achieved across all farms.
The various percentiles provide information on how income is distributed. Half of the farms generated an income of less than 30,000 euros (median), and a quarter of the farms generated less than 16,000 euros (25th percentile). In contrast, the most successful quarter of farms (75% percentile) generated an income of more than 50,000 euros.
10% of the farms earned less than 3,100 euros per worker (10% percentile), while the most successful 10% of all farms earned more than 74,500 euros (90% percentile).
Direct payments are a central point of discussion in the debate on the direction of the Common Agricultural Policy (CAP). The analyses of the farm accounts from the German FADN show that direct payments are an essential component of farm income. In the 2019/20 economic year, they accounted for about half, averaged over all farms, and by 60 percent the year before. The fact that the share of direct payments fluctuates significantly from year to year is mainly due to the annual ups and downs in income, while direct payments (based on hectares) are relatively constant over time.
The share of direct payments in income per worker is highest for fieldcrop farms. For farms with the highest value added per hectare - horticulture, wine and other permanent crops - the share is the lowest.
Another frequently used form of presentation is the share of direct payments in farm revenues: On average, they account for a share of about seven percent across all farms. In farms with a high value added per hectare - such as horticulture, wine and other permanent crops - the share of direct payments in farm revenues is significantly lower than in fieldcrop and other grazing livestock farms.
It is often argued that direct payments are essential for farms. However, in case of rented land, a large part of the direct payments is passed on to the land owners.
Empirical studies show that the capitalization of direct payments in land rents are likely to account for about 50 to 60 percent. Therefore, 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.