Farm Wealth Inequality Within and Across States in the United States

Agricultural and Resource Economics Review,  Oct 2006  by Mishra, Ashok K,  Moss, Charles B,  Erickson, Kenneth W

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Results

Table 2 presents the importance of each component (farms within a state and between states) of total inequality in terms of the Theil measure of inequality. In general the results indicate that the distribution of farm wealth changed significantly from 1996 through 2004. Inequality between farms in a state contributed the most, about 95-99 percent, to the total inequality. A similar pattern is observed in all ten regions of the United States. This finding is consistent with the fact that there is considerable variability in farm size, farm assets (real estate, mainly land, and non real estate assets, mainly crop and livestock inventories), and farm debt among farms in a state. Further, aggregation of farms at the state level reduces the variability in the components of wealth and hence reduces the level of inequality in farm wealth when comparing farms within different states and within a given region.

Table 2 shows that total farm-level inequality, across all regions, has decreased over the period 1996-2004. The highest level of total inequality (8.132) was observed in 1996 for farms located in the states belonging to the Southern Plains region, followed by that for farms located in the states belonging to the Northern Plains and Appalachian regions. Table 2 also shows that inequality among farms within states and regions decreased over the 1996-2004 period. For example, within-state inequality for farms located in the Southern Plains decreased by nearly 10 percent during 1996-2000 and by approximately 8 percent during 2000-2004. The largest reduction in overall or total inequality (approximately 15 percent) was observed among farms located in the Northern Plains during the 1996-2000 period, and next largest (about 16 percent) among farms located in the Corn Belt region during 2000-2004. This reduction is mainly due to a significant reduction in the inequality in farmland values across farms located in these states and eventually across states in the region. Further, the general trend for nearly all regions is that both real estate and non real estate assets became more equally distributed since most relative changes from the previous years (1996 and 2000) are negative (Tables 3 and 4).

In general, farmland values reflect farm investors' expectations about future discounted returns both from the market and from government payments on base acres. The FAIR Act of 1996 generally lowered the market price and output distortions introduced by government price support programs. As a result, producers could and did respond more and more to market-based price signals. For example, although the distributions of real estate and non real estate assets became somewhat more unequally distributed in 2000 than in 1996, these distributions became more equally distributed in 2004 versus 2000. However, in the Northern Plains, these distributions became more equally distributed much sooner, beginning in 2000. This may be due to the fact that adjusting the crop mix in the Corn Belt might be easier to do since it largely involves only changing rotations. Some Northern Plains farmers argued in the mid-1990s that planting flexibility did not really provide them much benefit since they had more limited alternatives and were already planting the best crop-wheat. However, this may have changed somewhat as more soybeans are now planted in that region, perhaps because new varieties of soybeans have provided more cropping options.