Farming operations are somewhat unique in that they are typically businesses where family members serve as both the employees of the business (labor and management) and the owners. This structure can be a source of conflict for family members.
As owners worried about the bottom line for the business, the dairy farm family might be inclined to expect the labor force to accept lower pay so that the business can withstand a period of low milk prices. Alternatively, the family labor force might believe its pay should not be cut and instead the business owners should accept a lower return on their investment in the business.
This issue of who should sacrifice in order to cope with low output prices is not unique to farm businesses. But in the case of farm families, family members are both laborers and owners. Because of this, “business” decisions typically become family issues when finances are tight, as they have been the last year.
If dairy farm families are to be reasonably compensated for dairy operation and management, plans need to be made to pay family members salaries and wages that are on par with what others in the U.S. earn. This is a straightforward budgeting activity when you know what U.S. households spend annually to cover basic expenses like food, shelter and utilities.
But managers of dairy businesses — who often know to the penny the cost to produce 100 pounds of milk — may not be familiar with what it is spent in the average U.S. household.
The table above summarizes the average annual household expenditures in 2008. The expenditures are reported for the entire U.S. and across four regions: Northeast, Midwest, South and West. These figures should help you become better acquainted with the various expenditures made in the average U.S. households.
The data show how consumers spend their incomes on various items. The single largest expenditure is housing (shelter), followed by transportation cost and food expenditures. These three areas make up about 40 to 50 percent of all household expenditures.
The key thing to note is that the average U.S. household spends somewhere between $45,000 and $55,000 on living expenses annually. This is the benchmark standard of living in the U.S. economy, and represents an earning level dairy farm families should expect to receive as compensation for the labor and management tasks they perform.
Dairy farm families work hard and endure several hardships. Because of this, they have every reason to expect an income that supports what is thought to be the normal standard of living in our society. The best way to see that this happens is to set up budgets to make sure families receive what they are due. This might hold back the progress of the business, but that’s OK. Sometimes, the business needs to go without so the family can have what it needs and deserves.
Bruce Jones is a professor of farm management at the University of Wisconsin-Madison.