Diversification Key to Rural Income

Newswise — If public policy makers hope to increase the average income in rural farm areas, they might want to begin by encouraging new non-farm businesses.

According to a study by Dr. Ed Fitzsimmons, a Creighton University economist, a county's average per capita income increases with its economic diversity. While the study, based on U.S. Census figures, is expected to hold true across the nation, it is particularly relevant to the Midwest, especially North and South Dakota, Nebraska and Kansas.

While Kansas was included in the study, Fitzsimmons says the typical Kansas county has a more diverse economic base and fares better overall. As for the other three states, 16 of the nation's poorest 50 counties are found in Nebraska and the Dakotas. Out of the 10 lowest scoring counties, six are in Nebraska. These rural areas are defined as counties that have no towns larger than 2,500 residents and where at least 20 percent of the income is generated by agriculture.

However, the study also shows that some rural counties top the national per capita average income by 28 percent, indicating that no single factor has the ability to raise a county's income above the norm.

"Those counties have diversified into non-farm businesses," Fitzsimmons says. "In recent years, rural development has supported diversification. This study supports that trend."

Far from being a "farm crisis," the problem of low income in rural counties appears long-term and chronic and has the potential to become a more serious situation, he says.

In evaluating the findings of the study, there has been no evidence to support that access to transportation boosts rural income, nor does being close to urban areas necessarily help.

"It depends how well integrated the county's economy is with the economy of the metro area," Fitzsimmons says. "Counties near metro areas can have access to specialized services, especially communications, that tie them in to the rest of the world. But commercial connections can be very limited."

Another economic factor, the numbers of financial institutions that are available, is shown to have a positive correlation to income, according to the study.

Broadband technology has been promoted as a means for boosting the rural economy, but it hasn't been sufficiently established to prove how much help it will bring, Fitzsimmons says.

The study also reveals that the size of the rural farm county's labor force is one of the least important factors on development, Fitzsimmons says.

But, with the average age of those heading family farms being 55, and with farmers over 70 years of age as the fastest growing segment of the rural population, the importance of diversifying those counties increases. Unfortunately, the continued exodus of young college-educated rural residents seeking higher wages only contributes to the problem.

Based on the data, there has been little upward economic movement in rural counties during the past three decades, and if these areas are to improve their economic lot, Fitzsimmons says the initiative likely will have to come from within. "Individual initiative can make a difference, provided local government doesn't set up barriers," says Fitzsimmons.

For example, local governing boards may find certain types of farm operations undesirable, may reject businesses that draw large numbers of tourists or have concerns that youth-oriented operations may bring problems.

Considering all of the factors, the impact of local governments on the health of the local economy can be mixed, Fitzsimmons says.

"A certain amount of infrastructure is needed for economic development," says Fitzsimmons. "But, county income will lower as county infrastructure expenses increase for each citizen."

Despite declines in population, agricultural counties have shown growth in non-farm proprietorships, equal to or exceeding metropolitan counties, both regionally and in every state.

Fitzsimmons says incentive programs need to be tailored for rural counties. Rural Americans are known for their work ethic and an independent streak that may explain the increase in non-farm proprietorships.

Marketing products outside the county will provide added economic stability, he says. Other notable factors include, good cropland and adequate water, which are basic to the financial success of any rural area. The study also suggests that good conservation practices are extremely important.

From the study, it is clear that many factors contribute to the problem and solution of low income in rural counties. But the findings are unmistakable; diversification is the key, and according to Fitzsimmons, "the most important factor."

Creighton is an independent, comprehensive university operated by the Jesuits. Creighton has been ranked at or near the top of Midwestern universities in the U.S. News & World Report magazine's "America's Best Colleges" edition for more than a decade.