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.