“Farm income” – What does this actually mean?

Background

For the presentation and analysis of the economic situation in agriculture, an easily understandable and significant indicator for operating results and farm income is important. Commonly, this is the “farm return”, which covers the remuneration of family-owned resources like land, family workforce and capital and enables net investments.

Profit results from balancing the earnings and expenses of an enterprise. In the case of legal entities (e.g., a limited company) the determination of profits already incorporates the deduction of wage expenses for all employees. For a comparison of profits between natural and legal entities they have to be standardized. Therefore in the National Agricultural Report, the key figure “profit plus wage expenses” is used. Since agricultural enterprises differ in size and economic focus, comparisons in profits are often displayed with reference to an appropriate standard figure (ha UAA, workforce, capital unit). The chosen reference often has a significant impact on the results. E.g., the profits of intensive animal farms, due to their scarce farmland, are commonly quite high per hectare in comparison with that of cash crop farms. However, if their profits are calculated in relation to workforce or to enterprise unit, they are comparatively low.

For the measurement of agricultural household income it is important both to precisely delineate the agricultural enterprise and to consider further sources of income. We speak of household income when we add each income of all members of a household to the farm income. These may be profits from other enterprises or from different sources of income like employment or letting and leasing.

In agriculture, energy production, e.g., via photovoltaic and biogas, has increased considerably in recent years as a further branch of operation, especially due to the Renewable Energy Law (EEG). This is taken into account within the national accountancy network starting in the accounting year 2012/13, by collecting supplementary information on earnings from energy production and other commercial operations (e.g., agricultural contracting) as well as earnings from participation in other agricultural enterprises. Basically, it is challenging to incorporate all earnings of a farm household in the case of existing business linkages and slightly complex structures of enterprises, since the necessary data is not fully available.