TABLE 3 Net Farm Income: Conventional versus Natural Resource Accounting (dollars per acre per year)

Item Accounting

Conventional Accounting

Natural Resource

Gross operating margin

75

75

Less soil depreciation

24

Net farm operating income

75

51

Plus government commodity subsidy

16

16

Net farm income

91

67

When a soil depreciation allowance is included, the gross operating margin is adjusted ($24) to obtain net farm income ($51). The depreciation allowance is an estimate of the present value of future income losses due to the impact of crop production on soil quality. The same government payment is added to determine net farm income ($67).

Net economic value (Table 4, column 3) subtracts $49 as an adjustment for off-site costs of soil erosion (such as sedimentation, impacts on recreation and fisheries, and effects on downstream water users).2 Net economic value also includes the on-site soil depreciation allowance, but excludes income support payments. Farmers do not bear the off-site costs directly, but these are real economic costs attributable to agricultural production and should be considered in calculating net economic value to society. Subsidy payments, by contrast, are a

TABLE 4 Net Economic Value: Conventional versus Natural Resource Accounting (dollars per acre per year)

Item Accounting

Conventional Accounting

Natural Resource

Gross operating margin

75

75

Less soil depreciation

24

Net farm operating income

75

51

Less off-site costs of soil erosion

49

Net farm income

75

2



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