Net farm income up slightly in Oregon

It may be too early to call it an upward trend, but Oregon farmers and ranchers generally made a little more money this past year, according to newly released statistics.

Oregon’s net farm income for 2002 was up about eight percent from the previous year, to nearly $356 million. The good news is tempered by the fact that 2001 net farm income was at its lowest level in 18 years. Still, it appears the agriculture industry in Oregon is holding its own despite a number of challenges.

Net farm income is the amount retained by growers after paying all expenses for their business.

“Certainly, we are encouraged to see the numbers go back up and we hope the net farm income for Oregon bottomed out the previous year,” said Katy Coba, director of the Oregon Department of Agriculture. “This is one more indication that our farmers and ranchers are hanging tough while the economy struggles to right itself.”

Other economic indicators confirm Coba’s contention that Oregon agriculture remains a vital economic contributor. The value of agricultural production is at $3.5 billion. Many individual commodities have done very well this past year. Agricultural exports are rebounding, and the value of the U.S. dollar has softened, which helps the producer. And as the overall economy improves, there is every reason to believe agriculture’s bottom line will improve as well.

“The increase in net farm income is not large, but it’s going in the right direction,” says Brent Searle, ODA analyst.

It continues to be a roller coaster ride for Oregon agricultural producers. Figures from the U.S. Department of Agriculture’s Economic Research Service show a volatile year-to-year net farm income figure. In 1990, the net farm income stood at $533 million. It peaked at $681 million and $672 million in 1993 and 1997 respectively. In contrast, times were tough in 1995 ($437 million) and 1999 ($354 million). The 2000 net farm income of $422 million was a modest increase from the previous year, but was followed up by the low mark of $330 million in 2001. You would have to go back to 1983 to find a lower figure for net farm income in Oregon.

An analysis of the statistics reveals some of the reasons for the gains this past year. Gross sales and cash receipts last year were roughly equal to 2001. But after several years of increasing expenses, it appears a drop in the cost of doing business is most responsible for the improved net farm income figure in 2002.

“Farm expenses — what it costs farmers to produce the crops and livestock — were down by about three percent from 2001,” says Searle. “So even though the gross farm income was down very modestly, expenses decreased even more. That’s a good sign that the industry in Oregon is making crucial adjustments and finding ways to adapt while maintaining productivity with fewer inputs.”

Producers generally have two categories of inputs. One category includes those inputs purchased from other farms such as hay, seed, and livestock. Expenses in that category were down six-and-a-half percent last year. The other catgory includes manufactured inputs such as machinery, fertilizers, pesticides, fuel, and electricity. Expenses in that category were down 13 percent from 2001, with an especially substantial drop in electricity costs.

Reflecting the trend in the overall economy, lower interest rates have also trimmed the cost of doing business for Oregon farmers and ranchers. Growers paid about $186 million in interest payments on real estate, operating loans, and other forms of credit in 2002. That’s down 5 percent from $195 million in 2001. Lower interest costs have saved Oregon producers up to $20 million per year over the past couple of years.

Lower land rents are also a factor in the better bottom line. Farmers and ranchers paid $217 million in 2002 to rent land from non-operator landlords — a 10 percent decrease from the previous year. Lower land prices have reduced costs to Oregon producers by up to $60 million in the past two years.

However, there are some higher costs in the latest report. Labor costs in Oregon climbed a modest half a percent in Oregon last year to $756 million, still making it the highest single expense cost for Oregon producers. In fact, the amount paid to employees is more than double the amount retained by producers as net farm income.

Finally, machine repair and maintenance costs continue to rise for Oregon farmers, which indicates producers are making efforts to lengthen the life of existing equipment and machinery during these times when profit margins are very thin.

All in all, Oregon’s agricultural producers are taking whatever management steps they can to control the expense side of the balance sheet.

“Farmers and ranchers are looking real closely at how they are doing things,” says Searle. “They are being careful in what they are spending and becoming much more efficient in their operations.”

The calculated net income per farm in Oregon is only at $8,405, but that figure is deceiving. There is a high percentage of hobby farms and part-time operators that don’t depend on cash receipts or sales as the principal source of income. Still, the net farm income for a number of operators is critically low, depending on what they produce and where they are located. Industry officials believe the pendulum will continue to swing upward when the numbers are tabulated for 2003.

While there are a number of Oregon industries that may not be enjoying an increase in the bottom line, agriculture is demonstrating its resilience as one contributor to the state’s economy that is showing some signs of recovery.

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