Newswise,
August 27, 2015 — ITHACA, N.Y. – After hours harvesting forage, managing
livestock and milking cows, new Cornell University agricultural economic
research shows family members who work on the family dairy farm make $22,000
less annually than comparable hired managers, but are handsomely compensated
with “socioemotional” wealth.
“While
$22,000 seems like a large penalty, there are nonfinancial rewards they
experience working for the family business,” said Loren Tauer, professor at
Cornell’s Charles H. Dyson School of Applied Economics and Management, who with
lead author Jonathan Dressler of MetLife’s Food and Agribusiness Finance,
published “Socioemotional Wealth in the Family Farm,” in a forthcoming Agricultural
Finance Review.
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.”
Further,
Dressler explained that socioemotional aspects of running a dairy farm “create
a sense of pride and belonging, as collectively each family member is
contributing an 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.
