Measurement of Farm Incomes Economics of Food Markets Lecture 4 Alan Matthews.
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Transcript of Measurement of Farm Incomes Economics of Food Markets Lecture 4 Alan Matthews.
Measurement of Farm Incomes
Economics of Food Markets
Lecture 4
Alan Matthews
Outline
• What are concerns about farm income?– The resources/returns square
• Measuring farm incomes– Macroeconomic sources
– Microeconomic (survey) sources
• Assessing farm incomes in Ireland– Farm household living standards
– Are farmers poor?
– What about returns to farming?
• Distribution of support to farming
Farm income concerns
• Income adequacy – are farmers poor?
• Income parity – do farmers earn less than the going rate on the resources they employ?
• Income stability – are farm incomes particularly volatile?
Parity--Welfare
Greater than parity Less than parity
Above the poverty line
Well-structured commercial farms
Large but low-yielding farms
Below the poverty line
Productive small farms with limited resources
Marginal farms, both poor and inefficient
Measuring farm income• Dimensions of the farm income problem
– poverty (income adequacy), instability (income stability), comparability (income parity)
– conceptualising farm problems using the farm welfare/resource returns square
• Aggregate income derived from the agricultural accounts calculated on a ‘national farm’ basis (CSO Economic Accounts for Agriculture)
• Different income concepts are used– net value added, income from self-employment in agriculture, net farm income
• Dividing aggregate farm income by the numbers engaged to obtain a measure of the health of the farming sector
Sources of data on farm incomes
• Macroeconomic– Economic accounts for agriculture
– Combine with data on sources of labour input (LFS vs AWU)
– Limited to averages/useful for showing trends over time
• Microeconomic– National farm surveys (Teagasc)
– Household budget surveys (CSO)
– Good for showing differentiation within the sector/may not be fully representative
Eurostat Income Indicators
Operating surplus
Limitations of the macroeconomic measure
• imprecision over numbers at work in the industry (Labour Force Survey vs. Farm Structures Survey sources)
• not all farmers are solely dependent on farming for their livelihood. A high proportion of farm household income now comes from off-farm sources (Household Budget Survey source)
• ignoring wealth and capital gains effects gives a misleading impression of economic status
• farming is not a homogeneous industry. Contains a wide range of farm sizes and types (Teagasc National Farm Survey). Incomes in cattle farming in Ireland are particularly low.
Microeconomic (survey) data on farm incomes
• Drawn from the Teagasc National Farm Survey– Allows us to measure the heterogeneity of incomes within
farming, by farm size or farm system or region
– Deals only with income from farming
• Drawn from the Household Budget Survey– Allows us to measure the total household income of farm families
– Note distinction between the ‘narrow’ and ‘broad’ definitions of a farm household
Comparing farm and nonfarm incomes
• crude approach based on calculation of a disparity index - ratio of average agricultural incomes to average earnings in rest of economy
• Average farm income vs. average industrial earnings
• Income from farming vs. total household income?
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nonagEmployment
nonagGVA
agricEmployment
agricGVA
Percentage of farm household income from all sources, per cent
1973 1980 1987 1994 1999/
2000
Farming 70.1 58.3 54.2 51.3 39.0
Other direct income
19.1 26.3 17.6 37.0 50.3
Transfer payments
10.8 15.2 28.3 11.7 10.6
Gross income
100 100 100 100 100
Source: Matthews 2004, in O’Hagan and Newman
Comparison urban-rural household incomes, 1999/2000
Income Source Farm H’hlds
Other Rural H’hlds
Urban H’hlds
State Average
Farming income 12,866 252 14 1,011
Non farm employment 14,270 20,924 29,506 25,949
Other direct income 2,315 2,818 4,986 3,413
Total state transfers 3,501 4,537 4,158 4,219
Gross Income 32,951 28,531 38,665 34,592
less Total direct taxation 3,437 4,116 7,088 5,974
Disposable Income 29,514 24,415 30,456 28,618
Persons per household 3.56 3.16 3.00 3.08
Gross Income per person in household
8,290 7,726 10,152 9,292
Disposable Income per person in household
2,329 2,445 3,384 3,017
Absolute levels of farmer incomes - measuring the extent of poverty
• Two issues– what is the relative importance of poverty (risk, incidence and severity)
among farmers as compared to other social groups – identifying the characteristics of farm households in poverty
• Defining the poverty line– whether to look only at financial income or other indicators of
deprivation– absolute vs. relative measures– the unit of analysis - individuals vs. households
• The Irish data (ESRI surveys) show considerable farm poverty, mainly older farmers on smaller holdings in west of country
Risk of poverty (relative income measure)(Poverty lines constructed using mean income)
1994 2000 2001
40 per cent line % % %
Farm households 11.4 14.4 10.5
Non-farm rural households 4.7 16.4 11.6
Urban households 4.0 8.6 8.3
50 per cent line
Farm households 20.1 26.4 21.3
Non-farm rural households 21.2 34.6 31.6
Urban households 17.0 20.2 18.7
60 per cent line
Farm households 30.9 41.1 38.1
Non-farm rural households 40.2 42.5 39.6
Urban households 31.4 25.8 26.5
Source: ESRI Living in Ireland Survey
Risk of poverty (consistent poverty measure)
1994 2000 2001
40 per cent line % % %
Farm households 2.2 0.7 1.9
Non-farm rural households 2.2 3.7 2.9
Urban households 2.5 2.7 2.1
50 per cent line
farm households 2.9 2.6 2.9
non-farm rural households 7.8 5.5 4.8
urban households 10.5 5.1 3.4
60 per cent line
farm households 4.7 2.8 3.1
non-farm rural households 14.3 6.8 6.5
urban households 16.9 6.2 4.2Source: ESRI Living in Ireland Survey
Are farmers underpaid?
• Idea is to compare returns to farm labour or capital with returns elsewhere in the economy
• Total return to farming is a return to farmer’s own labour, own labour plus management input
• Applying standard rates of return more than exhausts the available factor income
• Conclusion is that, even if farmers may not be poor, their resources are not being used very productively.
The distribution of government support – how well targeted?
• Support to farmers provided both directly and through market price support – easiest to measure distributional effects of direct payments
• DPs in EU often said to follow an 80/20 rule
• DPs in Ireland also go mainly to the better off farmers, but this conclusion can vary by scheme.
Measuring and assessing farm incomes- summary
• Farm problem concerns emerge from the direction and pace of the economic adjustment required of the sector
• widening differentiation in the farm sector (greater polarisation of farm size, greater access to off-farm income sources) makes drawing inferences from ‘average’ farm incomes increasingly anachronistic
• different measures of farm income are available and can be useful depending on the purpose in hand
• assessing the adequacy of farm incomes complicated by the huge degree of existing government support
• serious problems of farm (and rural) poverty persist