After long hours harvesting forage, managing livestock, and milking cows, family members who work on the family dairy farm make $22,000 less annually than comparable hired managers.
But beyond money, these family managers are rich in “socioemotional wealth,” according to new research.
“While $22,000 seems like a large penalty, you have to remember that this includes only the labor that a family member provides to the farm,” says Loren Tauer, professor at Cornell University’s Charles H. Dyson School of Applied Economics and Management.
“Although the literature discusses how family members may accept a lower salary working for the family business than they could earn doing comparable work in a nonfamily business, there are nonfinancial rewards they experience working for the family business,” says Tauer.
There are roughly 5,400 dairy farms in New York, large and small. “Family members like to work for the family farm, as it brings prestige and satisfaction by working with siblings, cousins, and parents,” explains Tauer. “The socioemotional part is that these family members feel an attachment to the dairy farm. It’s a warm and fuzzy feeling.”
Coauthor Jonathan Dressler of MetLife’s MetLife’s Food and Agribusiness Finance explains that socioemotional aspects of running a dairy farm “create a sense of pride and belonging, as collectively each family member is contributing their effort toward a common family goal.”
Dressler and Tauer examined dairy farm income in 1999 through 2008 and showed that New York farm manager median salaries varied widely from $41,884 in 1999, to $64,466 in 2004, to $74,986 in 2005, all adjusted for inflation to 2008 dollars.
While the family farm managers were paid on average about $22,000 less, family members were compensated in other ways, such as with equity in the family business, which includes land values and the value of the operation—all of which have risen over time.
For family farms, Dressler and Tauer estimated a 5 percent current return to equity and asset appreciation of 10 percent, for a total return to equity of 15 percent.
With “sweat equity,” Tauer explains, children eventually inherit farms or are given an opportunity to purchase farms at a low estimate of the farms’ value. That future ownership opportunity and the chance to work with family members offset reduced annual compensation.
The findings appear in Agricultural Finance Review.
Source: Cornell University