Factors affecting variability in farm and off-farm income

AFR paper PIC

The purpose of this paper is to examine the factors affecting the relative variability in farm and off-farm income for Canadian farm operators, using a dataset of 17,000 farm operators from 2001 to 2006.

The paper found that...

  • Greater reliance on farm income results in lower (greater) relative variability in farm (off-farm) income
  • Larger commercial operations experience larger farm income volatility because they are less risk averse or they can manage more risk
  • Diversification and off-farm employment appear to be risk management strategies for commercial operations.

Implications of the findings

  • Government payments have a small, positive effect on farm and off-farm income variability, indicating this support leads farmers to take on more risky activities and/or reduce the use of self-insurance activities
  • Results could also be due to the lag between the time of the income reduction and the time in which the aid is received.
  • Further research is necessary to decipher the effects of government support on farm decisions.

Economics of Farm Income and Farm Structure
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