Farm Income Variability and Off-Farm Diversification in Canadian Agriculture

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by Simon Jetté-Nantel, David Freshwater, Martin Beaulieu and Ani Katchova

Abstract:

For a majority of farm families and operators in the Organisation for Economic Cooperation and Development (OECD) countries, off-farm or non-farm occupations have become a significant source of income and a major determinant of their well-being. This study investigates the use of off-farm employment by the operator as a tool to reduce the variability of the total income of the farm operator. A two-part model is developed to estimate the impact of farm income risk on the decision to participate in the off-farm labour market and the level of off-farm employment income. Longitudinal farm operator level data for about 31,305 Canadian farm operators from 2001 to 2006 are used for this study. The variability of farm gross market revenue is found to positively affect the likelihood of off-farm work and the level of off-farm employment income, in particular for operators of large commercial farms. The ability of a significant number of operators of larger farms to increase their coping capacity through off-farm employment income suggests the presence of substantial interactions between off-farm income and farm income stabilization policies. Consequently, the focus of agricultural policies on risk management and income stabilization reinforces the linkages between rural and agricultural policies. In particular, 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. These results reinforce the need for coherent rural and agricultural policies, and reinforce the argument for place-based policy that augments the opportunities for all residents in a locality, not just those in a specific sector.