Oregon Agriculture Revenue Drops 9.6 Percent in 2006

Gross income is at an all-time high, but expenses are increasing at a greater rate.

(SALEM, Ore.) - A newly released economic snapshot of Oregon agriculture is a mixed bag of good news and bad news. On the positive side, farmers and ranchers last year collectively recorded the highest gross income mark in the state's history at more than $4.8 billion. On the down side, operating expenses have also never been higher, and actually outstripped the gains made in production value and sales.

The end result is a 2006 net farm income of $875 million– a 9.6 percent decrease from the previous year and a nearly 28 percent drop from 2004's record high net farm income.

The latest numbers do not suggest that Oregon agriculture is in trouble, however. It is all a matter of historical perspective.

"Even though we are seeing a slight drop from last year and a larger decrease from two years ago, it's important to look back to the earlier part of the decade when the overall health of the industry was not nearly as robust," says Katy Coba, director of the Oregon Department of Agriculture. "The 2006 net farm income is still the third highest in Oregon history. I continue to say that our diverse agriculture includes some farmers and ranchers that are doing very well while others are struggling. Net farm income is an average number. We need to recognize not everyone is making money and not everyone is losing money. On the whole, I'd say agriculture is doing well and contributes significantly to Oregon's economy."

Net farm income is the amount retained by agricultural producers after paying all business-related expenses. It is considered an important indicator of the agricultural economy's overall health.

Statistics provided by the U.S. Department of Agriculture's Economic Research Service show net farm income has more than doubled since 2000, despite a decrease in each of the past two years.

Farm profits have seen highs and lows in Oregon the past three decades. Net farm income bottomed out in 1983 at $283 million. In 1990, it stood at $533 million, peaking in 1992 at $681 million and once again in 1997 at $672 million. Times were tough once again in 2000 ($434 million) and 2001 ($437 million) before the number doubled by 2003 at $870 million. In 2004, what was then a record high overall value of production for Oregon crops and livestock pushed net farm income over the one billion dollar mark for the first time.

That high water mark has started to recede the past two years as farm expenses take a bigger bite out of the bottom line.

"Farmers' gross incomes continue to go up, and that's good news," says ODA analyst Brent Searle. "Agricultural productivity in Oregon is still increasing. We're not gaining land for more production. But it's costing growers more to purchase their fuel, fertilizers, pesticides, seed, and other inputs. Employee compensation is also going up at an increasing rate."

Oregon agriculture's balance sheet basically contains a "plus" side and a "minus" side. The "plus" side consists of the production value of crops and livestock along with various additional revenues. The numbers for 2006 vary by commodity sector. Crop production value – led by double digit increases for tree fruits and vegetables– jumped 12 percent last year. However, livestock production value dropped 7.4 percent, largely due to a decrease in dairy prices in 2006.

On balance, the overall production value of Oregon agriculture increased 4.8 percent in 2006 to $4.8 billion, according to USDA statistics.

On the "minus" side of the balance sheet are the expenses incurred by Oregon farmers and ranchers. Those expenses are up across the board.

"In the last two years, fertilizer costs are up 25 percent, the cost of pesticides is up nearly 14 percent, and the cost of petroleum products is up 35 percent," says Searle.

The price of fuel is especially dramatic to Oregon farmers and ranchers. The same kind of hike consumers see at the gas pump is affecting the profit margin of agricultural producers. The cost of petroleum fuel and oils has more than doubled in the past four years.

Other expenses such as machine repair, marketing, storage, and transportation are also way up.

Another notable expense for producers is property taxes, which have collectively increased nearly 50 percent in the past two years in Oregon.

As is the case every year, wages paid remains the number one expense for farmers and ranchers. About $900 million was paid to workers by farmers in 2006 to raise their crops and livestock. That is the highest employee compensation mark for agriculture in Oregon history and is a three percent increase over 2005, a 14 percent increase over 2004.

"When you see that employee compensation, in aggregate, tops the overall net farm income for Oregon's agricultural producers, it tells you that labor costs are extremely significant," says Searle.

Even though overall net farm income has increased this decade, it is a misnomer to assume that Oregon farmers and ranchers are generally getting rich. The USDA statistics do not account for payments on land purchases, family living expenses, or family health insurance. Also, cash received by the producer is often put back into the operation for equipment, buildings, and other essentials of the business.

Producers have also seen an increased cost to meet environmental and regulatory obligations. Most of these expenses come out of the farmer's net income.

Predicting the 2007 net farm income is not an exact science. But with stronger prices paid for grain, dairy, and many other Oregon commodities, economists expect a better bottom line for farmers and ranchers, even though expenses are probably not going down anytime soon.