Lecture 4.
Measurement of farm incomes

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What we want to learn about this topic

Short introduction to the issues

Farm income concerns

There are three dimensions to farm incomes which may give rise to a policy concern:

The distinction between the first two of these issues can be clarified using the resources/returns square

Parity

Welfare

More than parity returns

Less than parity returns

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

Farmers can be well-off if they have sufficiently large farms even if these farms are not run very well run; farmers can also be productive but poor.

Use of farm income statistics

Farm income statistics are used in different ways:

MEASURING FARM INCOME

Calculating aggregate farm income

The Basic Unit
Under the old methodology the concept of the 'national farm' was applied. This meant that the whole agriculture of a country was regarded as one big farm. This meant that flows on the same farm and between different farms were not accounted for in the agricultural accounts, as these flows would cancel each other out in the overall 'national farm'. With the new methodology, however, the concept of the 'national farm' has been replaced by the use of the individual farm as a unit. The important difference is that inter-farm transactions (e.g. the sale of cereals or cattle from one farm to another) are now captured in the statistics both as an output and as an input.

Valuation of agricultural output:
Under the old series output was valued at producer prices. The producer price is the price received by the farmer, and is sometimes referred to as the farm-gate or ex-farm price (it excludes VAT). Under the new EAA methodology output is now valued at the basic price. The basic price corresponds to the producer price plus any subsidies directly linked to a product (for example the Special Beef Premium for cattle) less any taxes on products (for example the Bovine Disease Levy for cattle).

The income concept
In the past, different income concepts were used e.g. net value added, income from self-employment in agriculture, net farm income. These are now replaced by the concept of operating surplus. Operating surplus is calculated before deduction for interest payments on borrowed capital and before deductions for land annuities and for rent paid by farmers to landowners for the use of their land. Entrepreneurial income is operating surplus less these interest and rental payments.

Output, Input and Income 2001 €m
Goods (Agric.) output at producer prices 4,876.4
plus Contract Work 316.6
plus Subsidies less Taxes on Product 685.8
Agricultural Output at basic prices 5,878.8
Less Intermediate Consumption 3,055.7
Gross Value Added at basic prices 2,823.1
less Fixed Capital Consumption

611.5

plus Other Subsides less Taxes on Prod. 694.4
less Compensation of Employees 292.0
Operating Surplus 2,614.0

See the CSO Output, Input and Income in Agriculture series for a detailed explanation of how these figures are derived.

Calculating average farm incomes from aggregate statistics on income from farming

By dividing aggregate income from farming (operating surplus) by the numbers engaged in farming, an average income from farming figure can be derived.

Limitations of the aggregate income measure

Micro data on farm incomes

The absolute level of farm incomes - trends over time

ASSESSING FARM INCOMES

The absolute level of farm incomes - farm/nonfarm comparisons

The absolute level of farm incomes - are farmers poor?

Comparability of returns from farming - are farmers underpaid?

Reading suggestions

Matthews, A., 2000. Farm Incomes: Myths and Reality, Cork, Cork University Press, esp. Chaps 5 and 6.

OECD, 2003, Farm Household Income: Issues and Policy Responses, Part I, 'Farm household income issues in OECD countries'.
(provides a comparative review of the level and distribution of farm incomes in selected OECD member countries). The OECD produced a short Policy Brief Farm Household Income: Towards Better Informed Policies which summarises some of the issues in the longer report.

Hill, B., 2000. Farm Incomes, Wealth and Agricultural Policy, 3rd edition. London, Ashgate
(exhaustive account of measurement of agricultural incomes within the EU - author has been an advisor to Eurostat on this question)

Supplementary reading

The following Eurostat publication discuss the concepts used in measuring farm incomes at EU level and provides information on farm incomes in EU countries:
Eurostat, 1996,
Total Income of Agricultural Households: 1995 Report, Luxembourg
(definitions and results on total income of farm households across the EU)

Web resources

The Wye Group Handbook, 2005, Rural Households' Livelihoods and Well-Being, UNECE.
(This book, produced by the Statistics Division of the UN Economic Commission for European, is in two parts. The first half looks at rural development indicators, the second half looks at measurement of agricultural household income and wealth).