[Agriculture Fact Book 98]

Net Value-Added, Net Farm Income, and Net Cash Income

Net value-added and net farm income reached record levels in 1996, rising substantially from 1995. Net value-added for 1996 was $19.1 billion more than in 1995, up 25 percent, and $9.5 billion greater than its previous high in 1994. Net value-added represents the total value of the farm sector’s output of goods and services (less payments to other, nonfarm, sectors of the economy) and production agriculture’s addition to national output.

The $22.6-billion rise in final output (crop output, animal output, and services and forestry) far exceeded the $3.4 billion increase in out-of-pocket costs in 1996. The value of 1996 crop output soared $17 billion, reflecting rebounds in both acreage and yield for major crops, both of which had declined in 1995, following 1994's record harvest. The total value of livestock production in 1996 was $4.4 billion higher than the previous year, the first increase in 3 years. Substantial increases in the sales of hogs, poultry, and dairy products more than offset a $4- billion decline in cattle sales.

Compensation to hired workers was 6.1 percent more than in 1995 and interest expenses increased by 3.9 percent. The earnings of nonoperator landlords were up 19.3 percent in 1996.

Net farm income, which jumped $15.4 billion from 1995 to 1996, is that portion of net value-added earned by farm operators (defined as those individuals and entities who share in the risks of production). In fact, the major share of the 1996 increment to net value-added accrued to farm operators. Typically it is farm operators who benefit most from the increases and absorb most of the declines arising from short-term, unanticipated weather and market conditions. However, due to the rise in earnings of farm employees, lenders, and landlords, net farm income rose less in 1996 than the increase in overall net value-added.

Net cash income rose by $8.8 billion, a 17.1-percent increase from 1995 to 1996. Net cash income reflects the cash earnings generated by the farm business which are available for debt servicing, capital purchases, and distribution to farm households to cover family living expenses. Net cash income, unlike net farm income, does not include the value of home consumption, changes in inventories, capital replacement, or implicit rent and expenses related to the farm operator’s dwelling. These categories do not reflect cash transactions during the current year.

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