THE ANALYSIS OF NET FARM INCOME: AN EXAMINATION OF FARM MANAGEMENT SURVEY DATA

The practical significance of the conventional “net farm income” is elusive. It would be useful to have an accepted method of dividing “management and investment income” into its recognised Components—managerial salary and return on tenant's capital. One is a residual if the other can be calculated, and both alternatives are considered. An empirical formula is suggested for estimating the managerial salary which may be imputed to the farmer, taking account of his total turnover, his labour bill and his net farm income. This formula is then applied to Farm Management Survey data, for individual farms and for groups of average, high and low performance (output per £ input). The method may permit closer analysis of relative profitability.     

Who Receives Farm Government Payments?

If we do not systematically attempt to collect data and assess distributional impacts, we shall always be surprised by the many unintended consequences of our public decisions. (Bonnen 1969, p. 447) Direct government payments to farmers have tripled in the last half of the 1980s. Market price support programs (for example, the Western Grain Transportation Act, among others) and supply management regulation continue to be topics of debate among policy analysts. Certainly the debate has become intensified by the discussions surrounding the Canada-U.S. Trade Agreement and the Uruguay Round of talks under the General Agreement on Tariffs and Trade. When all census farms are distributed across gross sales classes, the “selected” programs included in this study tend to be more concentrated among the mid-sized farms than are aggregate gross sales. However, if one considers Prairie grain farms distributed across farm size classes measured in terms of grain acres, gross sales, net farm income (specifically, NCFIWF) and the net “benefits” of “selected” government programs are similarly concentrated. For example, Prairie farms with 320 to 599 acres of grain report 24% to 26% of each of these four items.²⁶ The “selected” programs included in this study tend to pay about the same size of payout per farm household, regardless of the size of household income. We obtain this result because farm size in terms of gross farm sales tends to be the same, regardless of the size of household total net income. Across the spectrum of farm financial stability classes, the net “benefit” of the “selected” programs in this study tend to be distributed similarly to gross farm sales. The results depend on exactly how one implements the classification but more than two thirds of gross sales and more than two thirds of net “benefits” of “selected” programs accrue to farms with a higher level of financial stability. Across the spectrum of rates of return on equity as an indicator of farm efficiency, about one third of gross sales and one third of net “benefits” of “ selected” programs accrue to farms with a rate of return on equity of 10% or more. The potential impact of deregulation of supply management depends on one‘ s assumption. Three scenarios are presented here and, in each case, both “winners” and “losers” are identified. Between 4% and 37% of households on farms with quota would move from above to below the Statistics Canada low-income cutoff (LICO), depending on the scenario under consideration. However, in each seen-ario, there are cases of households moving from below to above LICO as a result of our calculated impact of deregulating supply management. This paper takes its lead from Bonnen's observation about “unintended consequences.” We do not offer an “evaluation” of any government program. Our sole objective is to illustrate “distributional impacts” so that all individuals in the policy debate may speak from an informed perspective. This paper represents an initial step in developing an “informed perspective.” As the first note to this paper indicates, an important ancillary objective is to illustrate the potential of Statistics Canada databases to provide tabulations to answer specific Questions posed by researchers and policy analysts.     

The Dynamics of Farm Incomes: Panel data analysis using the Farm Accounts Survey

This paper uses longitudinal information from the Scottish Farm Accounts Survey to explore the dynamics of Scottish farm incomes between 1988/89 and 1999/2000. Both the Net Farm Income and Cash Income of farms are considered. The results show high levels of income variability and income mobility within Scottish agriculture. Although exit rates from the lowest income groups remain relatively high even when spells of low income have lasted a number of years, there is evidence of farms with persistent low farm income and farms experiencing repeated spells of low‐income. Smaller farm size and having a farmer aged over 65 increase both the probability that a farm will fall into the lowest income group and the length of time spent in that income group. Further the results suggest that the impact of the post‐1997 agricultural recession on income mobility depended on the income status of the farm when the recession began.     

RELATIVE RATES OF RESOURCE RETURNS FOR ONTARIO COMMERCIAL FARMS - A FARM TO NONFARM COMPARISON, 1971–1974

This study examines the rates of return to resources in commercial agriculture in Ontario relative to the rates of return that similar resources could expect to earn in the nonfarm sector. Farm returns, which are defined to include net farm income plus capital gains to farm real estate, are measured for a selected group of Ontario farms over a four year period from 1971 to 1974. Two farm to nonfarm returns comparisons are made, based on comparable nonfarm earnings for farm resources calculated in terms of 1) a self-employment standard, and 2) a wage-earner-stockholder standard. Each comparison examines four return components for both farm and nonfarm returns: the labour return, the management return, the investment yield, and capital gains. Returns ratios are calculated, both including and excluding capital gains, to compare farm to nonfarm returns for each comparison. The overall returns comparisons indicate that rates of return to resources in commercial agriculture are generally quite close to comparable nonfarm rates of return, with capital gains constituting an important component of farm returns. At the same time the returns comparisons reveal a high degree of variability of rates of return among farms and over time. La présente étude compare les taux de rémunération des ressources des l'agriculture commerciale en Ontario et qu'engendreraient ces mêmes ressources dans un secteur d'activité non agricole. Les revenus agricoles, que Ton définit comme la somme du revenue net d'un exploitant et des gains provenant de ses placements immobiliers, ont étéévalués en Ontario pour un groupe d'exploitations pendant une période de quatre ans, 1971 à 1974. Deux normes de revenus non agricoles, à savoir l'entreprise privée et le salariéactionnaire, ont été retenues et compareées avec le revenu de l'exploitant agricole. Chaque norme comporte quatre éléments de rémunération: le travail, la gestion, le rendement de l'investissement et les gains en capitaux. Les rapports ont été calculés pour chaque norme de deux façons, avec ou sans les gains en capitaux, afin de comparer les revenus agricoles aux revenus non agricoles escomptés. La comparaison générate montre que dans l'ensemble le taux de revenu des ressources de l'agriculture commerciale se rapproche de ceux escomptés pour les activités non agricoles, et que les gains en capitaux constituent une bonne part des revenus de l'exploitant agricole. En outre, l'analyse révèle un degréélevé de variabilité des taux de revenu en fonction des divers exploitants et du facteur temps.     

FARM SYNDICATION AND RISK SHARING: A CASE STUDY*

The effectiveness of fully integrated group farming as a means of permitting farmers to achieve economies by working together and to share risk is investigated using two case-study farms from the mid-north region of S.A. Linear programming is used to explore the scope for economies achievable through group farming. The results show that, by joint use of resources, total net farm income can be increased and average costs per unit value of output can be reduced. The risk-sharing advantages of group farming are examined using quadratic risk programming. A group farm plan is found that generates a risky income which, when shared between the two risk-averse farmers, allows both to increase their expected utilities. The group plan also generates a higher aggregate expected net farm income than with sole ownership.     

Impacts of land fragmentation on the cost of producing wheat in the rain-fed region of northern Jordan

In some cultures inheritance customs results in land fragmentation such that over time operating farms become composed of a collection of spatially dispersed fields rather than a contiguous land unit. This study was conducted to determine the impact of land fragmentation as measured by average field size on the average cost of producing wheat in the rain-fed region of Northern Jordan. Primary data were collected from farmers in the region. Generalized Least Squares was used to estimate the average variable cost of producing wheat. It was determined that the average variable cost of producing wheat is a decreasing function of field size. Land fragmentation increases production costs. Continued land fragmentation will lead to decreasing efficiency and is problematic when it results in small fields.     

SOME FEATURES OF FARM INCOME AND STRUCTURE VARIATIONS IN REGIONS OF THE UNITED KINGDOM

Farm income trends and developments in farm structure have varied within the UK in the last decade. While Wales and Northern Ireland have similarities in form structure, agricultural production has risen to a much smaller extent, and farmers have suffered more severe net income reductions, in Scotland and Northern Ireland than in England and Wales. The net incomes of Cropping farms rose faster and, in England, have remained much higher than those of Dairy or Livestock farms. Large numbers of small farm businesses depend on beef cattle and sheep production and have limited development prospects. As most of their occupiers are unlikely to find other employment, structural problems will persist and policy adjustments are suggested to enable agriculture to contribute more to the economy in remote and depressed localities.     

Geographic disparities in rural land appreciation in a transforming economy: Chile, 1980 to 2007

This paper reports on a research effort to gather and analyze rural land value data during a period of unprecedented growth in Chilean agriculture. This information is important to understand the geographical distribution of gains associated with the transformation of the rural sector during a period of rapid development, trade liberalization and transition toward a predominant emphasis on export earnings in agriculture. A large set of data of rural land transactions for 1980, 1990, 1997 and 2007 were collected from a sample of land registry offices. Results show notable declines in the physical size of transactions, significant average annual rates of increase in real per-hectare values, and a small-parcel premium for rural land associated with non-farm land use. Overall real land values have increased faster than the average annual growth rates in the agricultural sector’s value added, suggesting that land owners have gained proportionately more than other claimants to sectoral income. Tests show significant geographic disparities in annual rates of land appreciation across regions and municipalities. Consistent with differential net gains due to integration into world markets and the geographic heterogeneity of suitability for different land uses, northern areas, with greater emphasis on export-oriented crops, have experienced the highest average rates of annual real per-hectare value growth, in the order of 7 percent, while southern areas, emphasizing traditional crops and pastures/livestock, have experienced growth rates of half that. Geographic disparities are also explained by proximity to urban population and income centers.     

Decision-making Criteria for Purchasing Milk Quota at the Individual Farm Level

Dairy farmers wishing to contemplate purchases of additional quota should first consider what the appropriate time horizon on their investment should be. If the chosen time horizon is one year or less, the problem of estimating how much they can afford to bid for quota can be solved with simple budgeting techniques. On the other hand, if the time horizon is taken as several years, and this would seem rational, then capital budgeting techniques are required. However, in either case, investment in additional quota should be compared with alternative investment opportunities before a final decision is made. Where capital budgeting techniques are used, a modification of the net present value approach permits the farmer to take account of his time preference for money, and allows calculation of the break-even price, or the maximum affordable price to pay for additional quota. This approach necessitates the provision of estimates of the expected net returns from investing in quota for each year of the selected time horizon, as well as provision of estimates of the salvage value of the quota and an appropriate discount rate. The calculation of the expected net returns figures represents the most difficult task for the farmer. If expansion of milk shipments rests upon increasing output of milk per cow, then the short-run production function and marginal cost curve provide the appropriate reference points. The expected net return on investment in quota is then given by the area under the marginal revenue line and above the relevant portion of the marginal cost curve. If, however, all short-run variable input decisions have already been implemented at the optimum level, and expansion of milk shipments depends upon expanding the number of cows, or the “fixed” plant and equipment, or both, then the average total cost curve is the appropriate reference point. The expected net return on investment in quota is then represented by the difference between total net revenue at the new planned level of output and total net revenue at the existing level of output.     

Public Policy in the 21st Century: Is Prairie Agriculture Becoming Like Any Other Industry? Does it Matter?

The question addressed in this paper is whether Prairie agriculture has become "like any other industry". The implication is that a positive response would lead to the conclusion that it should therefore be treated "like any other industry" rather than being accorded the special status that it has enjoyed for more than a century
We show that, as net farm incomes have declined over the past 35 years, Prairie farmers have responded by seeking other (non-farm) sources of income. At the time of the 1996 census, net farm income accounted for only 31 percent of farm family income (down from 75 percent in 1967). By 1999, the contribution of net farm income was even lower than in 1996
In spite of the dwindling contribution of net farm income to farm family income, average farm family income in Saskatchewan has exceeded average provincial household income for all but two years between 1971 and 1998, Under these circumstances, it is necessary to ask why it is in the public interest to subsidize an activity which, in recent good times, produced 31 percent of the income of a subset of the population whose household incomes were 10–15 percent above the provincial average
Based on income levels, it is probably no longer necessary to accord farm families special status in the public policy arena. However, other policy considerations (immobility of resources, the role of agriculture in the rural economy, environmental considerations, food safety and security, for example) remain, differentiating agriculture from other industries     

Examining the relationship between farm size and productive efficiency: a Bayesian directional distance function approach

Achieving sustainable food security and increased farm income will depend on how efficient production systems are in converting available inputs to produce outputs. Using data from Malawi, we estimate a Bayesian directional technology distance function to examine the relationship between farm size and technical efficiency. Our results support the existence of an inverse relationship between farm size and productive efficiency, where small farms are more efficient than large farms. On average, farms exhibit inefficiency levels of 60%, suggesting that productivity could be improved substantially. Improving productive efficiency and food security will require farms to operate in ways where the size of cultivated area is matched by nonland production inputs such as labor, fertilizer, and improved seeds. The results highlight the need for policies that could incentivize farmers to adopt productivity‐enhancing technologies and, where possible, to allocate excess land to lease markets.     

Measuring and causes of inequality in farm sizes in the United States

This article examines the notion of farm size inequality expressed as sales inequality in the United States. The farm size index (FSI) is developed as a measure of farm size inequality. FSIs are calculated for the farming sector in all 50 states and large variation in farm size across the states and over time is determined. The largest FSIs are calculated for a number of Southern, Southwestern, and Pacific states. Increasing FSIs over time are observed in all states as well. The spatial and temporal (between 1987 and 1997) differences in FSIs are explained by running a pooled, cross‐sectional time‐series model. The most influential variables accounting for the differences have to do with the ownership structure, where a larger presence of individual and family farms relative to corporate farms and cooperatives leads to a lower degree of farm size inequality. Also, states and regions having relatively larger number of farms owned by minorities have higher FSIs. Shrinking opportunities in the agricultural sector relative to the rest of the economy, primarily services, are reflected in a declining share of agricultural sector state income in total gross state product (GSP). This in turn leads to an increase in the farming sector's FSI suggesting that only larger, more profitable operations are the likely candidates to pursue farming activities. Finally, grains farming regions have all lower degree of farm size inequality than livestock or fruits and vegetables regions. Profitable grains farming requires relatively large farm size and equipment investments, which leads to a relatively homogeneous structure of grains farms. A larger variation in the size of profitable farm operations is possible in fruits and vegetables and livestock. This leads to the existence of a large number of very small but still sustainable farms, and a relatively small number of large farms that capture most of market sales share.     

Sequential Adoption of Site-Specific Technologies and Its Implications for Nitrogen Productivity: A Double Selectivity Model

This paper analyzes the sequential decision to adopt two site-specific technologies, soil testing and variable rate technology, and the impact of adoption on nitrogen productivity. The results indicate that while farm location was a key variable influencing adoption of soil testing, farm size, human capital, and innovativeness of farmers had a significant impact on adoption of variable rate technology in four Midwestern states. A double selectivity model applied to correct for sample selection bias shows that adoption leads to significant gains in nitrogen productivity for farms with below average soil quality but statistically insignificant gains for farms with above average soil quality.     

Technical efficiency,herd size,and exit intentions in U.S. dairy farms

The U.S. dairy industry has seen major restructuring in recent decades. A sharp decline in the number of U.S. dairy farms and an increase in average herd sizes have accompanied exits, which have been concentrated among smaller herds. Given that more productive farms are better positioned to increase operation size and to continue operation, we hypothesize that the more technically efficient farms are better able to expand and also have stronger incentives to continue production. Using data from the USDA's 2010 ARMS Phase III, Dairy Production Practices and Costs and Returns Report, we estimate technical efficiency using stochastic production frontier analysis with endogenous inputs. The efficiency estimate is then incorporated into the analysis of exit intention and herd size. The results confirm our hypotheses that smaller and less efficient farms are more likely to exit and that more efficient dairy farms tend to expand herd size. Moreover, farms without successors but with older and more educated operators are more likely to exit.     

Accounting for the Gender Technology Gap Amongst Smallholder Rice Farmers in Northern Ghana

Narrowing the gender technology gap in agricultural production has become a critical policy issue in sub‐Saharan Africa. A better understanding of the gender technology gap is essential for policy formulation and programme planning to ensure equity in resource allocation, and household‐level food security in low and middle income countries, such as Ghana. We employ a metafrontier approach to analyse the differences in the efficiency of male and female farmers, recognising the endogeneity of some of the variables in the inefficiency effects model, in particular the credit constraints of the rice farmers under study. Our findings show that while the rice farms themselves are very similar, average yields for male managed farms tend to be significantly higher than female managed farms reflecting higher seeding and fertiliser application rates on male managed farms. However, there is no significant difference between the genders in either land used for rice or total output per farm household. We find some evidence that relative to the metafrontier, male managed farms are less efficient than female managed farms. The results further show gender technology gap amongst the smallholder rice farmers with females’ technology gap ratio being significantly greater than that of males, with females operating on a production frontier closer to the metafrontier. Policies that provide females more access to productive resources and other agricultural services could assist in the generation of relatively higher output.     

Public support effect on natural disaster management: A case study of ice storms in forests in Slovenia

In the last decade Slovenia has experienced more frequent natural disasters in forests. The most severe and widespread one that affected Slovenian forests, which cover more than a half of Slovenian territory, was a large-scale ice storm in early February 2014. This study aims to investigate the effect of the public support on the recovery of forest farms affected by the 2014 ice storm. Analyses focus particularly on the ability of Slovenian forest farms’ income recovery in a short-time period. The economic resilience of forest farms in the absence of forest disaster payments due to the absence of legal certainty for disaster aid in 2014 and 2015 provides an interesting framework for identifying the income effect of Common Agricultural Policy (CAP) payments. The Farm Accountancy Data Network has been used with applied statistical and regression methods to estimate the public support effect on selected woodland area size samples. Results suggest a positive effect of CAP payments on farm income recovery. The magnitude of the effect is high and significant for the less favoured area and disaster payments that were given for farm production loss in the 2013 drought. Although the magnitude of the effect is weak, investment payments show a significant positive effect on farm income recovery for all studied forest farm samples.     

贫困地区农业结构调整对农民收入的影响——重庆五区县实证分析

本文利用重庆贫困地区5个区县619户农户实地调查资料,着重从农产品商品率和现金收入的变化,分析了农业结构调整对贫困地区农户人均纯收入的影响。同时探讨了农业结构调整对农户增收的影响因素。经过计算和分析认为:农民人均纯收入的变化中,贡献率最大的是外出打工等工资性收入,农业纯收入增量的贡献率不到1/3。且农业纯收入增量中,由于商品率提高带来的现金收入增量也不到一半。因此可以说,农业结构调整对农户收入的提高产生了一定影响,但作用有限。另外,农村基础设施建设,如道路、电力通讯等设施建设是影响农业结构调整对农民增收作用的重要因素。     

Analysing Farm‐specific Payments for Norway using the Agrispace Model

Norway maintains a complex system of activity or type specific coupled payments which account for a large share of farm income. Most of the payment rates are negatively related to farm size and are higher in remote areas compared to central regions. We present and use a newly developed recursive‐dynamic multi‐commodity model (Agrispace) with CES production functions depicting regional farm clusters derived from the full farm population. Using this model, we simulate impacts of current and alternative subsidy policies on production, prices, input use, income and farm structural change. Mapping cluster results to each farm along with behavioural rules allows estimation of individual profits and farm exits. Our results indicate that, in the short run, the current policy regime seems to support the policy objective of maintaining a variety of farms in all parts of Norway. In the long run, farm structural change is less affected by a policy reform that leaves total support levels unchanged.     

Economic impacts of East Coast Fever immunization on smallholder farms,Kenya: a simulation analysis

A whole farm simulation model, Technology Impact Evaluation System (TIES), was used to assess ex-ante financial and economic impacts of immunization of dairy cattle against East Coast Fever (ECF) by the infection and treatment method (ITM) on smallholder farms from two sites in Kenya. Four alternative strategics of immunization in combination with different levels of acaricide use were compared with the current acaricide-based method of control. The economic impacts were estimated using simulated net present values, present values of ending net worth, internal rates of return, benefit-cost ratios, annual cash farm incomes, cash expenses, and net farm incomes. The results from the analysis indicate that ECF immunization strategics are financially and economically viable on smallholder farms. Based on the risk preference for risk averse producers, the most preferred strategy was to adopt ITM in combination with a 75% reduction in acaricidc use. The results obtained provide a good indication of the relative orders of magnitude of the farm level financial and economic effects of ECF immunization by ITM. The whole farm simulation model used for the analysis has the advantage of incorporating the risks involved in farm production. Whole farm simulation offers a flexible method for assessing the financial and economic impacts of alternative disease control methods on smallholder farms.     

Economic evaluation of ecosystem goods and services under different landscape management scenarios

Human-induced changes in the natural environment are affecting the provision of ecosystem goods and services (EGS). Land use plans rarely include the value of public ecosystem services such as climate regulation and biodiversity due to difficulties in valuing these services. In this study, we assessed total economic value for five important ecosystem goods and services under five future land-use scenarios using varying levels of costs, prices and discount rates. Results indicated that at higher discount rates normally applied to commercial activities, and assuming the current prices for goods and services, net present value (NPV) was highest for landscape management scenarios aimed at maximising agricultural production. Potential income from services such as carbon and biodiversity does not offset projected income lost from agriculture due to land-use changes. At higher discount rates, NPV was negative for the two scenarios aimed at enhancing the longer term ecological sustainability of the landscape. These results indicate that income from carbon sequestration and biodiversity conservation would need to be considerably higher than current levels in order to justify focusing management of this landscape on ecological outcomes. At lower discount rates (at levels normally associated with public investments), the more ecologically appropriate ‘mosaic farming system’ had the highest NPV, indicating that this type of system might be attractive for investors interested in longer term return horizons or wider public benefits. Higher income from carbon or biodiversity, or increased return from timber by using high value tree species, could potentially make more ecologically appropriate systems profitable at higher discount rates.