Driving Forces behind Exiting from Farming in Western Europe

This study examines the exit process of Western European farmers. Using a simple theoretical model of structural change, we examine empirically the impact of farm characteristics, macroeconomic conditions and policy intervention on farm exits during the 1990s. Econometric estimates using regional data for 110 regions in Western Europe indicate that exits from farming are strongly influenced by farm characteristics and policy conditions. In particular, exit rates are higher in regions with smaller farms and are closely related to production structures. Exit rates are lower in regions with more part‐time farming, high subsidy payments and high relative price increases for agricultural outputs, indicating that off‐farm income and government intervention slow down structural change in European agriculture.     

Agricultural Policy Reform and Off‐farm Labour Decisions

Off‐farm labour decisions of a sample of Kansas farmers are evaluated. The central question of our analysis pertains to whether 1996 US farm policy reforms may have altered the decisions to work off the farm. The effects of policy decoupling on off‐farm labour are complex: different aspects of policy changes can have opposing effects on off‐farm work decisions. Essentially, this makes this issue an empirical question. Results show that the introduction of fixed, decoupled payments in 1996 might have reduced the likelihood of off‐farm labour participation. However, the new policy environment may have increased farm households’ revealed aversion to risk, motivating a higher participation in non‐farm labour markets. The effects of 1996 policy reforms on farm income variability could have been attenuated by changes in US crop insurance programmes and by an increase in emergency assistance payments towards the end of the 1990s. The reduction in price supports may have increased the motivation for working off the farm. The net effect of the overall reforms on off‐farm work participation is not likely to have been large.     

Welfare implications of reduced government subsidies to farm families: accounting for fringe benefits

In the past three decades, farm families have relied on government payments and off‐farm income to reduce income risk and increase total household income. Studies have shown that, as the income effect dominates, government payments tend to reduce off‐farm labor of farm operators and spouses. But that may not be true if one accounts for fringe benefits associated with off‐farm employment. Additionally, with looming budget deficits and the possibility of a reduction in decoupled government payments, farm families may be facing an altered economic environment. Our study addresses this issue by examining the links between government farm program payments and the ever‐important role of fringe benefits in the off‐farm employment of farm couples. Results from farm‐level data actually show that the marginal effect of government payments on hours worked off‐farm will decrease in magnitude when accounting for fringe benefits, ceteris paribus. These results support the notion that farm households’ welfare loss stemming from reduced decoupled payments may be overstated when models exclude fringe benefits from the estimation of off‐farm labor supply.     

Off‐farm employment and reasons for entering farming as determinants of production enterprise selection in US agriculture

In today’s agriculture, farmers consider off‐farm employment and lifestyle goals in complex ways to select production enterprises. Data from USDA’s Agricultural Resource Management Survey were used to examine how off‐farm employment and ‘reasons for entering farming’ influence production enterprise selection in US agriculture. A two‐stage analysis with a multivariate tobit model was used to examine the impact of off‐farm employment as influenced by government farm programme payments, reasons for entering farming, demographics and location on production enterprise selection. Results underscore the impacts of reasons for entering farming and off‐farm employment on production enterprise choice and provide implications for policy development. The study highlights the importance of government farm programme payments in production enterprise selection by US farmers.     

Market imperfections,liquidity, and farm household labor allocation: the case of rural South Africa

Asset endowments and market imperfections shape households’ labor allocation decisions and lead to different production regimes within rural farm households in South Africa. This article uses a farm household model to explain the presence of three main household groups determined on the basis of the labor regime adopted: small peasants (working both on and off farm), self‐cultivators (autarkic in labor) and hiring‐in households. A partial generalized ordered logit is used to test the main predictions of the model and a Brant test on threshold constancy is performed to identify the household‐specific factors affecting labor market participation. The results show that liquidity constraints and market imperfections matter in the choice of the labor strategy adopted. Liquidity‐constrained households are more likely to sell labor off farm while access to information facilitates the hiring in of workers.     

Off-Farm Labor Participation Decisions of Married Farm Couples and the Role of Government Payments

The determinants of off-farm work by married farm couples are examined using data from the 2004 Agricultural Resource Management Survey and multinomial logistic regression. Expected government payment is found important in decreasing the likelihood of off-farm work strategies involving work by the husband only or by both husband and wife relative to a strategy of no work by either husband or wife. The marginal impact of government payments on the probability of the wife working off farm alone is found positive suggesting the possibility of nonpecuniary motives for off-farm employment for 21% of farm households in the selected weighted sample.     

Government Payments and Farm Business Survival

Using farm-level panel data from recent U.S. Agricultural Censuses, this study examines how direct government payments influence the survival of farm businesses, paying particular attention to the differential effect of payments across farm-size categories. A Cox proportional hazards model is used to estimate the effect of government payments on the instantaneous probability of a farm business failure, controlling for farm and operator characteristics. Results indicate that an increase in government payments has a small but statistically significant negative effect on the rate of business failure, and the magnitude of this effect increases with farm size.     

Saying Sayonara to the Farm: Hierarchical Bayesian Modeling of Farm Exits in Japan

Off‐farm employment opportunities are thought to have an effect on farm exit rates, though evidence on the sign of this effect has been mixed. Examining this issue in the context of Japanese agriculture, we find that farm exits are related to off‐farm income as a share of household income, and more specifically to the nature of off‐farm work. Two econometric models are developed: a hierarchical Bayesian linear model and a hierarchical Bayesian Poisson model. Both models perform well in predicting exit rates across the towns and prefectures of Japan.     

Assessing the Impact of the ‘Decoupling’ Reform of the Common Agricultural Policy on Irish Farmers’ Off‐farm Labour Market Participation Decisions

This paper assesses the impact of the ‘decoupling’ reform of the Common Agricultural Policy on the labour allocation decisions of Irish farmers. The agricultural household decision‐making model provides the conceptual and theoretical framework to examine the interaction between government subsidies and farmers’ time allocation decisions. The relationship postulated is that ‘decoupling’ of agricultural support from production would probably result in a decline in the return to farm labour but it would also lead to an increase in household wealth. The effect of these factors on how farmers allocate their time is tested empirically using labour participation and labour supply models. The models developed are sufficiently general for application elsewhere. The main findings for the Irish situation are that the decoupling of direct payments is likely to increase the probability of farmers participating in the off‐farm employment market and that the amount of time allocated to off‐farm work will increase.     

Interrelated labor decisions of farm couples: a censored response analysis of off‐farm work

Farm couples' labor market responses are partly the discrete choice of entering the off‐farm labor market and partly the continuous choice of off‐farm working hours, given entry. Such a setting is interesting when examining the increasing occurrence of multiple job‐holdings among farmers in Western economies. Most existing analyses of off‐farm labor supply only model the decisions of the farmer, not the joint decisions of the farm couple. This article presents a framework for handling such interrelated discrete/continuous choices, involving also farm production and household consumption. The derived two‐equation sub‐model for husband/wife's censored labor responses is estimated from a 10‐year Norwegian panel data for 342 farms. The results agree to some extent with earlier studies, but are more informative because of the longer panels—which allows a more extensive examination of latent heterogeneity and behavioral persistence—because it provides cross‐effects in the spouses' labor supplies. The results show some interesting differences between how the independent variables influence the labor supply of operator and spouse. This is most evident for the cross‐effects of education, children, and wage rate. Overall, the results strongly support applying a panel‐censoring model that accounts for latent heterogeneity in this context.     

Gender,control, and crop choice in northern Mozambique

Women play an important role in the agricultural production process in developing countries, yet their role in making decisions about what to grow and implications for household welfare remains poorly understood. In this article, I study women's empowerment in northern Mozambique as it relates to agriculture, considering in particular the factors associated with women managing the plots that they nominally control. Women control about 30% of the plots in the data, but only manage about 70% of those plots. Using a unique panel data set, I find that women are more likely to manage plots when households have had historic access to off‐farm labor, typically completed by men. When women manage plots, they tend to grow crops with less complicated production techniques and are less likely to grow the main area cash crop. However, conditional on historic access to off‐farm labor their farm incomes are the same as among men.     

The Impact of Coupled and Decoupled Government Subsidies on Off-Farm Labor Participation of U.S. Farm Operators

With the 1996 Farm Act, the United States introduced payments that were designed to be "decoupled." Labor allocation choices are likely to be affected by receipt of payments, and income from off-farm jobs has been the major source of income for most farm households for sometime. This article examines whether the 1996 change has affected the off-farm labor participation of farm households. We conclude that the observed increase in off-farm participation of farm operators who received payments was not the result of the 1996 policy change. Government payments, whether coupled or decoupled, have a negative effect on off-farm labor participation.     

Off‐farm labor market decisions and agricultural shocks among rural households in Kenya

Using household level data from rural Kenya, this article explores whether and how farm households respond to unfavorable agricultural production environments, including any ex post adjustments in off‐farm labor supply in response to unexpected weather shocks. While controlling for a wide range of educational, demographic, and other locational factors, we examine how long‐term weather conditions and specific rainfall shocks influence a household's decision to engage in, and their earnings from, the off‐farm labor market. We find that rural households engage in off‐farm work as a long‐term strategy to deal with the effects of anticipated weather conditions on their farming operations. The analysis does not reveal major short‐term adjustments in off‐farm engagement as a result of specific, unexpected rainfall shocks; these households do however rely on remittance income and petty agricultural wage labor under these circumstances. Holding other factors constant, and conditional on participation, households in areas with a more productive local agriculture tend to earn more from off‐farm work especially in the informal/business sector than their counterparts in regions with a less productive agriculture. As expected, a vibrant local economy in the form of public investment increases the probability of off‐farm participation.     

Herd Growth,Farm Organisation and Subsidies in the Dairy Sector of Russia and Kazakhstan

Initially taken as a template for farm restructuring after the demise of collective agriculture, the ‘Western family farm model’ has taken root in the former Soviet countries only belatedly and incompletely. We examine dairy structures in Russia and Kazakhstan and analyse the drivers of recent herd growth. We are specifically interested in the role of farm management and organisation, vertical integration, and the role of policy. Regression analysis based on a sample of 180 randomly selected commercial dairy farms, using an innovative simultaneous equation framework, shows that better herd management and access to milk marketing contracts were more effective in stimulating herd growth than current subsidy payments. We do not find evidence that milking plants belonging to corporate entities or even supra‐regional agroholdings grow more substantially than medium‐sized individual farms. Twenty‐five years after the end of central planning, structural change among commercial dairy farms in Russia and Kazakhstan appears similar in many ways to the patterns observed in the West more recently: smaller farms catch up in terms of herd growth and classical family‐run operations coexist with or even emulate vertically integrated agribusinesses based on hired labour. In moving toward this ‘new normal’ of farming structures, commercial dairy farms in Russia may even be a few steps ahead of their Western counterparts. At the same time, the still sizeable but stagnating group of subsistence producers in rural households finds no equivalent in the West.     

Implications of the US Farm Bill of 2002 for agricultural trade and trade negotiations

The US Farm Bill of 2002 is the latest in a 7-decade history of farm subsidy laws that transfer funds to farmers and regulate and subsidize production of selected commodities. Fruit, tree nut, ornamental and vegetable crops, hay and meats remain outside scope of main subsidy programs. The new law continues many innovations of the 1996 Act, such as removal of authority for annual land idling and crop price floors accompanied by government stockholding. Government payments remain the primary focus of commodity programs. The total amount of these payments are likely to remain similar to the amount paid in the period 1999–2001, but with some changes in the form of the programs. For example, allowing owners to update acreage and yield payment bases creates additional incentives for farmers to link current planting decisions to anticipated farm subsidies. Similarly, the new program that ties "counter-cyclical" payments to the price of a specific crop also has production stimulus. A new program, estimated to add about 5–10 per cent to marginal milk revenue for smaller farms, makes 'deficiency' payments to dairy farms when milk prices are low. Despite the new programs with added links to stimulating production, new USA programs stimulate production only marginally more than the subsidies of the 1999–2001 period, which were replaced. Furthermore, the USA has flexibility to avoid explicitly violating its WTO commitments. Nonetheless, this US Farm Bill of 2002 has curtailed the previous trends toward lower farm subsidies and smaller production stimuli, and the negative publicity surrounding it has made negotiating reductions of farm trade distortions more difficult.     

Is there a future for small farms in developed countries? Evidence from the French case

This research aims to identify the specific characteristics of small farms in developed countries and the factors that influence their survival and growth. Using the case of France, we employ statistical and econometric analysis of data from the Farm Structure Survey (N = 70,000) for the period 2000–2007. The principal findings suggest that small farms are no more likely than other farms to employ “alternative” strategies to the predominant model of increasing farm size, nor are they more likely to diversify on‐farm activities or operate under quality‐labeled production systems, with the notable exception of organic agriculture. However, where small farms do adopt or practice these activities, they are seen to have a favorable effect in ensuring their survival and growth. In contrast, we are unable to conclude that pluriactivity of farm households has a positive impact on the survival of small enterprises. The effect of geographical location on small farms is largely expressed in their concentration in mountainous or disadvantaged regions. Overall, the trajectory of small farms is marked by farm exit, principally as the result of farmers retiring at the end of their careers. The small farm sector is also revitalized by both larger farms declining and thus being reclassified as small farms, as well as the progressive entry into agriculture of small farm holders whose income was previously derived largely off‐farm.     

Off-farm work decisions on Dutch cash crop farms and the 1992 and Agenda 2000 CAP reforms

A double hurdle model of off‐farm work participation and off‐farm labour income was derived and estimated consistent with a farm household model. It was found that rationing and unexpected transaction costs inhibit farm households from participating in off‐farm work. The 1992 and the Agenda 2000 CAP reforms are most likely to increase the off‐farm employment of arable farm households, but its full effect cannot be realised because of inhibitions to enter off‐farm activities. Household and farm characteristics have different impacts on off‐farm work participation and on the level of off‐farm labour income.     

A New U.S. Farm Household Typology: Implications for Agricultural Policy

Changes in U.S. agriculture have yielded a diversity of farm types. These changes have extended beyond the farm business and into the farm household. The objective of this research is to motivate, develop, and discuss the policy implications of a new typology of U.S. farm households, which is based on household economic theory. Using the 2003 Agricultural Resource Management Survey and statistical analysis, the U.S. Farm Household Typology identifies six mutually exclusive groups of U.S. farm households. This typology is then compared to the current Economic Research Service Farm Typology and used to investigate the distribution of government payments.     

Spousal Effect and Timing of Retirement

The retirement decisions of individuals are strongly influenced by spousal retirement, financial incentives and institutional constraints such as access to early retirement benefits. In the European Union (EU), farm retirement is encouraged by early retirement provisions for farmers. As exit from farming determines the characteristics of structural change in agriculture, it is important to find out how spousal retirement and economic incentives affect the timing and type of retirement decisions among elderly farmers. This paper analyses the timing of early retirement decisions of farming couples using duration analysis and different exit channels. The empirical analysis is based on Finnish farm‐level panel data for the period 1993–1998. The results suggest that an expected pension particularly advances farm transfers. Farming couples are found to co‐ordinate their early retirement decisions. However, farmers are not found to co‐ordinate their early retirement according to spousal retirement under other pension schemes.     

An Investigation into Factors Affecting the Occupational Choices of Nominated Farm Heirs in Ireland

The resilience of family farming is an important feature of the structure of the farming industry in many countries, due largely to the ‘smooth’ succession of farms from one generation to the next. The stability of this structure is now threatened by the widening gap between the income expected from farming when compared with non‐farming occupations in an economy like Ireland, operating at almost full employment. Nominated farm heirs are increasingly unlikely to choose full‐time farming as their preferred occupation. To identify the factors that affect this occupational choice, a multinomial logit model is developed and applied to Irish data to examine the farm, economic and personal characteristics that influence a nominated heir's decision to enter farming as opposed to some non‐farming occupation. The results show a significant negative relationship between higher education and the choice of full‐time farming as an occupation. The interdependence between education and occupational choices is further explored using a bivariate probit model. The main findings are: the occupational choice and the decision to continue with higher education are made jointly; the nominated heirs on more profitable farms are less likely to pursue tertiary education and therefore more likely to enter full‐time farming. The model developed is sufficiently general for studying the phenomenon of succession on farms.