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Off-farm income has become a major determinant of farm operators' and farm families' economic well-being. The farm-operator-level data set used in this study indicates that about 60% of Canadian farm operators have reported off-farm employment income between 2001 and 2006, with an average off-farm employment income of $18,371. In this context, this article contributes to the knowledge and understanding of this structural change in the primary agricultural sector, and its potential implications for both rural and agricultural policies.

This article provides empirical evidence supporting the idea that farm income risk is related to the decision to work off the farm, farmers diversify their income portfolio with off farm activities. The ability of farm operators and households to combine risky farm enterprises and off-farm opportunities has policy implications. Off-farm diversification must then be added to a list of existing, albeit imperfect, private risk management tools. The existence of these off-farm opportunities implies that farm income stabilization policies could risk crowding out private initiatives.

The results of the analysis for commercial farms, which represent the central focus of agricultural policies, further support the idea that off-farm income is of relevance to farm income stabilization policies. The data indicate that among operators of the largest unincorporated farms, one operator out of ten earns more than 30% of its income from off-farm sources. Moreover, econometric results show that it is operators of the large commercial farms that appear to employ off-farm income as a risk management in response to farm income risk. This may reflect their greater preoccupation with fluctuation in farm market revenue and income, but it also suggests that a significant number of these operators of large farms were able to work around farm labour constraints to take advantage of off-farm opportunities. 

While it should also be noted that off-farm opportunities, on their own, are unlikely to fully address farm income instability issues, the focus of agricultural policies on risk management and income stabilization reinforces the linkages between rural and agricultural policies. It appears that policies designed to facilitate access to off-farm work or to enhance off-farm opportunities, such as rural development programs, could contribute to achieve some objectives underlying agricultural income stabilization programs.

Consequently, the policy focus on risk management combined with the fact that farmers production decisions and their welfare appear to be conditioned on an income portfolio  including a substantial amount of off-farm income reinforce the need for coherent rural and agricultural policies. In particular, the analysis points towards additional benefits of rural policies for the agricultural sector, as increasing off-farm opportunities could be used by farm operators and families to manage farm income risk. This conclusion is in line with recent affirmation of the American Farm Bureau that by now "farm communities are less dependent on farms than farms are dependent on rural communities" (American Farm Bureau, 2008, p.viii). This raises questions about the desirable balance between placed based rural policies and sector specific agricultural policies, and on whether and how agricultural policies should account for off-farm diversification possibilities in order to minimize the crowding out of private initiatives.

Finally, many possible extensions of this study can be contemplated. First, the data used in this study pertain to the operators but it would be of interest to understand if the same effects are present at the family level, and whether the number of operators on a farm affects the results. Future research could also look at other measures of risk in order to assess the robustness of the results. All of these extensions could be helpful in understanding structural changes within the farming community and provide further information on the potential interactions between off-farm income and agricultural policies.