Farm income variability and off-farm diversification among Canadian farm operators

Purpose - For many farm families and operators across the OECD countries, off-farm income has become a major determinant of their well-being. The purpose of this paper is to investigate the potential role of off-farm employment as a risk management tool among farm operators.Design methodology approa...

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Bibliographic Details
Published in:Agricultural finance review 2011-01, Vol.71 (3), p.329-346
Main Authors: Jetté-Nantel, Simon, Freshwater, David, Katchova, Ani L., Beaulieu, Martin
Format: Article
Language:English
Subjects:
Agricultural industry
Agricultural policy
Agriculture
Diversification
Economic models
Economic theory
Expected utility
Farm income
Farmers
Farmers markets
Farms
Farmworkers
Households
Income
Labor market
Risk management
Rural development
Standard deviation
Studies
Utility functions
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Summary:Purpose - For many farm families and operators across the OECD countries, off-farm income has become a major determinant of their well-being. The purpose of this paper is to investigate the potential role of off-farm employment as a risk management tool among farm operators.Design methodology approach - A two-part model is applied to a longitudinal farm-level data set for about 20,000 Canadian farms, from 2001 to 2006, in order to estimate the relationship between farm income risk and the decision to participate in the off-farm labor market and the level of off-farm employment income.Findings - The variability of farm market revenue is found to be positively related to the likelihood of off-farm work and the level of off-farm employment income, in particular for operators of relatively large farms. Hence, farm operators' production decisions appear to be conditioned on an income portfolio that includes a substantial amount of off-farm income for all sizes of farms.Social implications - These results reinforce the need to consider the portfolio effect induced by the integration of farm resources within the non-farm sector. This is particularly relevant to risk management farm policies that have typically considered decisions made in the agricultural sector in isolation.Originality value - This paper uses a true farm-level panel data set to investigate the relationship between farm income risk and off-farm work. The size of the data set also allows the robustness of the results across farm typologies and size to be tested. This study contributes to the understanding of structural changes in the farm sector, and their potential implications for both rural and agricultural policies.
ISSN:0002-1466
2041-6326
DOI:10.1108/00021461111177602