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.     

Technology choice and efficiency on Australian dairy farms*

Deregulation of the Australian dairy industry, specifically the removal of price subsidies to ‘market milk’, as well as ongoing drought in many dairy regions, has placed considerable pressure on farm cash income and a search for ways in which dairy farms can be made to operate more efficiently. Using traditional farm survey data and a unique biannual data set on farm technology use, this paper estimates a stochastic production frontier and technical efficiency model for dairy farms in New South Wales and Victoria, determining the relative importance of each input in dairy production, the effects of key technology variables on farm efficiency, and overall farm profiles based on the efficiency rankings of dairy producers. Results show that production exhibits constant returns to scale and although feed concentration and the number of cows milked at peak season matter, the key determinants of differences in dairy farm efficiency are the type of dairy shed used and the proportion of irrigated farm area. Overall farm profiles indicate that those in the ‘high efficiency group’ largely employ either rotary or swing‐over dairy shed technology and have almost three times the proportional amount of land under irrigation.     

Farm technical and environmental efficiency and subsidy redistribution in Ireland: A simulation approach of possible performance and equity effects

We investigate the relationship between EU Common Agricultural Policy environmental payments, and dairy and beef farm level competitiveness and environmental performance. We use an Irish panel of farm level financial data for the years 2000–2017 and apply stochastic frontier analysis. Our estimates identify a positive relationship between technical efficiency and the Green, Low-Carbon, Agri-Environment Scheme for dairy farms, in contrast with the negative relation identified for previous payments of this kind such as the Rural Environment Protection Scheme for both beef and dairy. We then simulate increases in the first type of environmental payments financed through reductions in decoupled payments. We use alternative scenarios for payment redistribution such as flat allocation, allocation to farms with low stocking rates or proportional reallocation of payments. We find that under the second scenario, marginal environmental gains can potentially be achieved for dairy farms. For beef farms, the proportional allocation performs best regarding environmental gains. We also find that under this scenario, the impacts on income inequality can be smoothed for both farm types.     

STABILITY IN FARM INCOMES

The primary aim of this study has been to measure the extent of income variability in United Kingdom agriculture; to determine whether variability has been diminished; to compare the incidence of variability on various types of farm; to consider to what extent individual farm have consistent or divergent experience of income variation; and to determine whether net incomes generally move in the same direction as the prices of farm products. A secondary aim has been to determine whether income variation in agriculture is greater or less than in other sectors within the United Kingdom and within the United States. Income variation has been found to be roughly twice as large in the farm sector as in other sectors and in all sectors variation was less in the second half of the period studied.     

Off‐farm work and technical efficiency on U.S. dairies

In this study, we investigate the impact of an increase in farm households’ off‐farm work on technical efficiency (TE) of U.S. dairies. We present a theoretical framework that implies that an increase in farm household off‐farm work decreases TE. We use two nationally‐representative samples of U.S. dairies (2010 and 2005 Agricultural Resource Management Surveys) and a parametric approach (stochastic frontier analysis) to empirically test the hypothesis. Results are generally consistent with the hypothesis and show that an increase in off‐farm work by the farm household is associated with a significant decrease in TE. In addition, results show that there is a statistically significant difference in TE between small, medium, and large farms. Small farms are associated with significantly higher off‐farm work and have lower TE than large farms, which implies that less off‐farm work by households with larger farms is at least partially responsible for the evidence of economies of scale in the U.S. dairy industry.     

Do the Largest Firms Grow and Diversify the Fastest? The Case of U.S. Dairies

We analyze growth and diversification of U.S. dairy farms by examining changes in ten size cohorts and new entrants through three successive censuses. We reject Gibrat's law and the mean reversion hypothesis of growth. Growth rates appear bimodal where the smallest and largest farm cohorts grow fastest. All cohorts diversify but the largest farms do not diversify as rapidly as medium-sized farms. New entrants are generally large, and they diversify more rapidly than comparably sized incumbents do. These data suggest that scale economies persist even for the largest cohort of U.S. dairy farms and scale economies dominate scope economies for large farms.     

Diversification, Vertical Integration, and the Regional Pattern of Dairy Farm Size

Dairy farm size differs considerably across the United States. We analyze patterns of dairy farm size to determine how differences in vertical integration and diversification relate to farm size. We find that diversification accounts for little size variation. For vertical integration, the partial correlation with dairy herd size is strongly negative. Dairy value-added size measures vary less across regions than herd size, indicating that an important part of herd size variation relates to vertical integration. Nonetheless, dairy farms in the Pacific and South regions remain much larger than farms in the traditional dairy regions, even when accounting for vertical integration.     

‘Good’ farm management employment: Emerging values in the contemporary Irish dairy sector

The number of Irish dairy farms with herds greater than 100 cows has increased from 4.5 % in 2005 to 23 % in 2016. The abolition of the dairy quota in 2015 has led to predictions that this trend will continue and that an additional 6000 people will be required to work on dairy farms by 2025. Ownership of farms is esteemed, with farm employment perceived as a poor second option, so it is necessary to identify possible routes towards creating 'good' farm employment relationships. This paper explores the social, cultural and economic values of employers and employees in the context of early experiences of farm employment in post-quota Ireland. Using narrative analysis, this study found that employees gained esteem and pride from acquiring managerial responsibilities and receiving recognition for their abilities and accomplishments from their employers. Greater social recognition of employ’ abilities by peer groups and in networks (social capital) cemented ‘good employee’ status. Employers, in a context of unprecedented dairy production expansion, emphasised the need for and demonstrated changing of power structures to open up the farm to new forms of influence. However, employers’ reflexivity in support of employment relationships was undermined overall by what the management literature calls a weak ‘rewards system’ for employees. Without the supportive scaffolding of a formalised rewards system, relational gestures of responsibility-devolution and employ’ appreciation of employees may be insufficient to sustain quality farm management employment in the long term. Inevitably, this diminishes the attractiveness of farm employment, limiting the drawing of talent not only into farm employment but into associated capacity-building programmes.     

Enhancing productivity on suburban dairy farms in China

Dairy farms in China's suburban areas have been playing an important role in providing urban markets with fresh milk. With the rising demand for fluid milk and dairy products in the cities, there is a perception that small and scattered dairy farms in China's provinces are gradually disappearing and more concentrated dairy cattle farming is being formed near suburban areas. This article uses farm‐level survey data and stochastic input distance functions to make estimates of total factor productivity (TFP) on suburban dairy farms, as well as for the entire dairy sector. The results show that over the past decade TFP growth has been positive on suburban dairy farms, and this rise in productivity has been driven mostly by technological change. However, at the same time we find that, on average, the same farms have been falling behind the advancing technical frontier. We also find one of the drivers of the suburban dairy sector is the relatively robust rate of technological change of these farms, which has been more rapid than on farms in the dairy sector as a whole. The results suggest that efforts to achieve greater adoption of new technologies and better advice on how to use the technologies and manage production and marketing within the suburban dairy sector will further advance productivity growth in the sector.     

Agritourism and off‐farm work: survival strategies for small farms

This study considers agritourism and off‐farm work as income diversification choices simultaneously and analyzes factors influencing such choices. Further, the study assesses the impact of agritourism, off‐farm work, and both on gross cash farm income and total farm household income. We utilized large set of nationwide farm survey data and selectivity‐based multinomial choice model. An important finding of our study is that small farms have higher household income if they choose both income diversification strategies rather than a single strategy. Results suggest that education, age of the operator, financial condition, and location of the farm are important factors driving income diversification alternatives. Finally, our study indicates that accounting for selectivity is essential to ensure unbiased and consistent estimates.     

Analysing Production Technology and Risk in Organic and Conventional Dutch Arable Farming using Panel Data

This paper compares the production technology and production risk of organic and conventional arable farms in the Netherlands. Just–Pope production functions that explicitly account for output variability are estimated using panel data of Dutch organic and conventional farms. Prior investigation of the data indicates that within variation of output is significantly higher for organic farms, indicating that organic farms face more output variation than conventional farms. The estimation results indicate that in both types of farms, unobserved farm‐specific factors like management skills and soil quality are important in explaining output variability and production risk. The results further indicate that land has the highest elasticity of production for both farm types. Labour and other variable inputs have significant production elasticities in the case of conventional farms and other variable inputs in the case of organic farms. Manure and fertilisers are risk‐increasing inputs on organic farms and risk‐reducing inputs on conventional farms. Other variable inputs and labour are risk increasing on both farm types; capital and land are risk‐reducing inputs.     

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.     

Patterns in Technical Efficiency and Technical Change at the Farm‐level in England and Wales, 1982–2002

English and Welsh farm‐level survey data are employed to estimate stochastic frontier production functions for eight different farm types (cereal, dairy, sheep, beef, poultry, pigs, general cropping and mixed) for the period 1982 to 2002. Differences in the relative efficiency of farms are explored by the simultaneous estimation of a model of technical inefficiency effects. The analysis shows that, generally, farms of all types are relatively efficient with a large proportion of farms operating close to the production frontier. However, whilst the frontier farms of all types are becoming more efficient through time because of technical change, it is also the case that the efficiency of the average farm for most farm types is increasing at a slower rate. In addition, annual mean levels of efficiency for most farm types have declined between 1982 and 2002. The factors that consistently appear to have a statistically significant effect on differences in efficiency between farms are: farm or herd size, farm debt ratios, farmer age, levels of specialisation and ownership status.     

RISK AND FARM SIZE IN THE PASTORAL ZONE

Variable performance over time is an important feature of wool growing in the eastern pastoral zone of Australia. An analysis of time series data from the Australian Sheep Industry Survey indicates that standard deviation of net farm income is related more or less linearly to size of firm and increases with size at about the same rate as does average net income. A tentative conclusion is drawn that large farms have had a slight tendency to experience less variable rates of return than small farms. However, it is found that farms that have experienced relatively variable returns have tended to enjoy average rates of return above those of other farms of similar size.     

Effects of direct payments on rice income variability in Japan*

The effects of direct payments on rice income variability in Japan are analysed based on a balanced panel dataset of Japanese rice farms for 2012–2016. Firstly, the contribution of income components to rice income variability and the effects of a direct payment reduction are discussed by applying variance decomposition. Secondly, robust regression techniques are used to measure the correlation between direct payments and rice income variability. The originality of this paper is that it disaggregates the effects of payments using a regression analysis of the effects of direct payments on income variability for Japan. This contrasts with the existing literature on this topic, which has largely focused on European Union countries. This paper discusses to what degree the reduction in direct payments increases income variability. The results reveal that direct payments decrease Japanese rice income variability. Indeed, after controlling for various farm characteristics, we find a negative relationship between the amount of direct payments linked to rice production and rice income variability. Finally, the results suggest that reducing direct payments when the rice price is falling would increase rice income variability.     

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.     

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.     

The impact of agricultural policy on farm income concentration: the case of regional implementation of the CAP direct payments in Italy

One of the objectives of agricultural policy worldwide concerns the support of farm income. Common Agricultural Policy direct payments (DPs) are the main instruments to support farm income in the European Union. This article addresses their role in the concentration of farm income. This is done by calculating the Gini coefficient and its disaggregation in a large sample of Italian farms in the period between 2006 and 2007. Although this approach has been used to develop ex‐post analysis in previous studies, this article is innovative given that it is used here in an ex ante analysis aimed at evaluating the likely impact of a recent reform proposal. This latter requests changing the current model to a regional model of DPs application to make payment rates (i.e., payment per hectare) homogeneous among farms in the same region. The analysis shows that DPs and farm incomes are both very concentrated but that DPs allow for an income concentration reduction in Italian farms. The shift to a regional implementation reduces DPs concentration and, to a limited extent, farm income concentration. Of the considered regionalization scenarios, those that redistribute DPs among regions are the most effective in reducing concentration. The extension of the Gini considered approach to an ex ante setting seems effective because it provides insights that could feed the policy debate regarding the forthcoming reform.     

FARM HOUSEHOLD STRATEGIES AND PLURIACTIVITY IN UPLAND SCOTLAND

This paper considers how farm households in Grampians, an upland area of Scotland, are adapting to changing economic and political pressures. Most farms in the area are family farms, and such farm households are being exhorted to diversify their sources of income and to reduce their reliance on agriculture. Based on surveys in 1988 and 1989, this study finds, to the contrary, that only a small proportion of farmers has been reducing reliance on agricultural sources of income, and few anticipate a declining share of their household income to come from farming. Most farmers are loathe to undertake ancillary non-agricultural occupations because of the lower status implied; and farmers in the study area are found to have a very poor understanding of the broad policy context within which they produce. The paper also confirms the finding of other studies that off-farm employment of household members makes a significant contribution to farm household income; and the nature of such pluriactivity and of pluriactive farm households in the area is reviewed.     

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.