Abstract:The continuous optimization of farmers' income structure and the reasonable control of income differences are the prerequisites for achieving high-quality integration of rural industries and solving the gap between the rich and the poor in rural areas. Based on the micro-survey data of 732 farmer households in Yichang and Suizhou of Hubei Province, this paper examined the differences and the income structure of farmers by using the Theil index and Gini index. The results show that the household income and its inequality of the industrial-integration-group farmers are significantly higher than that of the non-industrial integration group, which means that the heterogeneity of the farmers’ income source is an important reason for the income structure differences. According to the income source structure, the Gini coefficient is decomposed, and it is found that the non-agricultural income of the fusion group contributes 70.63% to the income inequality, and its marginal contribution rate is positive and the income gap is expanded, which may be the important incentive for rural industry integration to affect the income distribution gap of farmers. Furthermore, when the average non-agricultural operating income is increased 1%, its total Gini index may increase by 0.2371%. The marginal contribution rate of farmer household agricultural income, wage income and transfer income is negative, which means that the total income inequality of farmers is reduced. Further decomposition of the Theil index by industry integration and regional subgroups confirms that the contribution rate of the industrial integration type and regional subgroups to the income inequality of farmers is significantly greater than the gap between the groups. The government should promote the integration of rural industries and explore the linkage mechanism of rural industrial chain to alleviate the inequality of farmers’ income.