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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Decomposing the overall inequality into dispersion between farms within-state and across-states (between states) for a given region, one can derive additional insight.5 Variations between states tend to reflect macroeconomic factors such as changes in farm structure (i.e., farm size, farm type). Variations within-state reflect microeconomic conditions (such as farmland prices), which tend to be correlated among states in a region. Since farmland comprises about 80 percent of farm household wealth, changes in farm wealth are largely driven by changes in farmland supply and demand. Therefore, changes in the betweenand within-state distribution of farm wealth suggest the extent to which farmland markets are becoming increasingly integrated across farms in the states and across states.

Changes in Inequality Within State

Overall, the inequality between farms within a state accounted for nearly 97 percent of the reduction in the total inequality in farm wealth between 1996 and 2004. The within-state inequality of farm wealth or equity (I in Equation 12) for each of the ten Economic Research Service (ERS) regions is presented in Table 2. There is a consistent pattern that emerges from this table; for example, within-state inequality in all regions has declined over the period 1996-2004, but the rate of decline varies with a region. In general, a reduction in farmland values and crop and livestock inventories inequality were the reasons behind the decline in the inequality in farm wealth among farms located in various regions. However, during the 1996-2000 period, within-farm inequality increased in the Corn Belt (3 percent) and Mountain (about 7 percent) regions. This is partly due to the rising inequality in real estate assets (or farmland values) of about 2 percent (Table 3), and increased levels of inequality in crop and livestock inventories (3 percent) (Table 4) within farms in the Corn Belt region. However, rising inequality in crop and livestock inventories (about 12 percent) outpaced inequality in farmland values (3 percent), and rising farmland values were a reason for increased farm wealth inequality within farms located in the Mountain regions (Tables 3 and 4).

Table 2 also presents the inequality in farm wealth of farms located in the Northeast, Mountain, and Pacific regions. Farms in the Northeast and Appalachia regions tend to be small and agriculture labor-intensive. Beginning in 1997, the inequality in farmland values and inventories of crop and livestock has been increasing among farms in the Northeast (Tables 3 and 4). This rise could be partly due to the growth in farmland values driven by urban pressure (Livanis et al. 2006) and to global trade (Blandford 1999). This growth in farmland values provides unrealized capital gains, thereby enhancing farm wealth. In addition, increased off-farm income from suburban employment opportunities may have also contributed to the growth in farm equity. However, in recent years within-state inequality in farmland values and crop and livestock inventories has decreased, leading to an overall decline in inequality in wealth among farms located in the Northeast region.