Volatility of Farming and Operator’s Family Income of Canadian Farmers

Volatility of Farming and Operator’s Family Income of Canadian Farmers

Kenneth PoonUniversity of Guelph

AGRI Research Group, Statistics Canada

http://fare.uoguelph.ca/

Farm Income Characteristics

Farming income highly variable compared to other sectors Variability in production and price Farm families are more financially vulnerable

Volatility as a measure of financial well-being Volatility = variability over time


Support Program

Growing Forward Objectives: Foster competitive and innovative

sector improve welfare of farm operators and families

Business Risk Management (BRM) Suite Programs designed to reduce income / margin

volatility Catch-all program: no specific commodity/group

targeted


Why Volatility?

Currently, no clear picture of income volatility for Canadian agricultural sector Few datasets are formatted to examine volatility

Studying volatility can identify… Any sectors are relatively more vulnerable Trends in volatility Factors related to volatility


Data Source

The Farm Micro-Longitudinal Dataset Operator-level Panel data, 2001 - 2006 Source incorporated & unincorporated income tax Data cleaned

NO T3 records (i.e. community farms) NO duplicates: 1 operator per farm per family NO entries with 0 revenue or expenses for all 6 years NO entries labeled as ‘non-farm’ for 3+ consecutive

years Final Sample Size: 32692 operators

5355 operators dropped


Measuring Volatility

Volatility = variation over time Measurement: Coefficient of Variation (CV)

Standard deviation over time / mean over same period % variation from mean CV=0: no volatility, CV=1: SD=mean, CV undefined: mean=0

Interested Variables Net Operating Revenue (NOR) Operator’s Family Income (OFI), unincorporated only


Relating Volatility

Relating volatility: Spearman Rank Correlation Similarity in ranking of CV between NOR, OFI Unweighted comparison between 2 variables

If Spearman’s rho = 1: ranking matches perfectly 0: non of the rankings match -1: ranking exactly opposite


Typology

Typology based on AAFC definition Determined by typology @ start of sample (2001)

*Low income cutoff in 2001, for family with 2 parents, 2 children under 18SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006

Typology Low Income Pension HobbyDefinition THI < $19,473*

& REV <$250k

Age ≥ 65OR

Age ≥ 60 with pension income

REV <50k&

Family off-farm income > $50k

# of Records 3441 5864 2235Typology Small Medium Large Very LargeDefinition REV ≤ $99,999 REV between $100k

and $249,999REV between $250k and $499,999

REV ≥ $500k

# of Records 4350 6008 4981 5813


• Commodity Groups determined by NAISC• Commodity consist of >50% sales• Determined @ start of sample (2001)•

Commodity Groups

Commodity Groups

Oilseeds & Grains

Potato Fruits & Tree Nuts

Greenhouses, Nurseries & Floriculture

Other Vegetables

Other Crops

# of Records 8945 781 671 1131 1231 1806

Beef Cattle Dairy Cattle

Hog and Pigs Poultry & Eggs Other Animals

# of Records 7714 5015 2170 1688 1540

SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006


Typology vs. Commodity Groups

0%10%20%30%40%50%

60%70%80%90%

100%

Commodity Group

% o

f Com

mod

ity G

roup

in T

ypol

ogy

Low Income Pension Hobby Small Medium Large Very Large



Volatility of Typology

CV ranked within typology, into quartiles Max CV of 25th, 50th, 75th percentile reported

Volatility of NOR, 2001-2006CV@

Low Income Pension Hobby Small Medium Large

Very Large

25ptile 0.73 0.56 0.59 0.52 0.36 0.41 0.4550ptile 1.34 1.00 1.07 0.95 0.68 0.74 0.8375ptile 2.75 1.99 2.27 1.95 1.29 1.48 1.69


0.731.342.75

0.360.681.29

CV of NOR at selected percentiles, 2001-2006


Weighted Annual Mean of NOR, 2001-2006

-$20

$0

$20

$40

$60

$80

$100

$120

$140

2001 2002 2003 2004 2005 2006

Year

2001

Rea

l $ (T

hous

ands

)




Median 3-year CVs by Typology, 2001-2006

0.40

0.50

0.60

0.70

0.80

0.90

1.00

2001-2003 2002-2004 2003-2005 2004-2006

3-Year Periods

Coef

ficie

nt o

f Var

iatio

n (C

V)




Volatility of NOR by Commodity Groups

CV at Grain & Oilseed PotatoFruits and Tree Nuts

Greenhouses, Nurseries, Floriculture

25ptile 0.58 0.54 0.57 0.49

50ptile 0.97 0.78 0.89 0.8675ptile 1.90 1.70 1.71 2.23

CV at Beef Cattle Dairy Cattle Hogs and PigsPoultry and Eggs

25ptile 0.63 0.21 0.50 0.41

50ptile 1.17 0.39 0.91 0.6175ptile 2.38 0.82 1.72 1.09

CV of NOR at selected percentiles, 2001-2006


0.210.390.82

0.631.172.38

0.490.862.23


Weighted Annual Mean of NOR, 2001-2006

-$100

-$50

$0

$50

$100

$150

2001 2002 2003 2004 2005 2006

2001

Rea

l $ (T

hous

ands

)

Grain & Oilseed Potatoes Fruit and Tree Nuts Greenhouses, etc

Beef Cattle Dairy Cattle Hogs & Pigs Poultry & Eggs



Median 3-Year CVs by Commodity, 2001-2006

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

2001-2003 2002-2004 2003-2005 2004-2006

3-Year Periods

Coef

ficie

nt o

f Var

iatio

n (C

V)





Volatility by Typology

Volatility of OFI, 2001-2006CV at

Low Income Pension Hobby Small Medium Large

Very Large

25ptile 0.46 0.17 0.15 0.20 0.24 0.30 0.41

50ptile 0.76 0.37 0.31 0.35 0.39 0.51 0.7175ptile 1.21 0.63 0.57 0.58 0.63 0.87 1.20


0.460.761.21

0.410.711.20

0.150.310.57

0.200.350.58


Weighted Annual Mean of OFI, 2001-2006

$0

$20

$40

$60

$80

$100

$120

$140

$160

2001 2002 2003 2004 2005 2006

Year

2001

Rea

l $ (T

hous

ands

)




CV of Total Household Income

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0.55

2001-2003 2002-2004 2003-2005 2004-2006

Years

Coe

ffic

ient

of V

aria

tion

(CV)




Volatility of Commodity Groups

CV at Grain & Oilseed PotatoFruits and Tree Nuts


25ptile 0.20 0.29 0.18 0.16

50ptile 0.39 0.42 0.37 0.3075ptile 0.66 0.75 0.64 0.55

CV at Beef Cattle Dairy Cattle Hogs and PigsPoultry and Eggs

25ptile 0.21 0.20 0.24 0.17

50ptile 0.41 0.33 0.46 0.3775ptile 0.72 0.57 0.73 0.61

Volatility of OFI, 2001-2006


0.290.420.75

0.240.460.73

0.200.330.57

0.160.300.55


Weighted Annual Mean of OFI by Commodity Group, 2001-2006

-$100

-$50

$0

$50

$100

$150

2001 2002 2003 2004 2005 2006

Year

2001

Rea

l $ (T

hous

ands

)





3-year CVs of OFI by Commodity Group, 2001-2006

0.10

0.15

0.20

0.25

0.30

0.35

0.40

2001-2003 2002-2004 2003-2005 2004-2006

3-Year Periods

Coef

ficie

nt o

f Var

iatio

n (C

V)





Correlation between CV of NOR & THI

Spearman’s rho between NOR & OFI by typology, 2001-2006Low Income Pension Hobby Small Medium Large

Very Large

rho 0.49 0.40 0.17 0.41 0.68 0.80 0.86

Grain & Oilseed PotatoFruits and Tree Nuts


rho 0.48 0.64 0.35 0.46

Beef Cattle Dairy Cattle Hogs and Pigs Poultry and Eggs

rho 0.45 0.78 0.64 0.69

Spearman’s rho between NOR & OFI by commodity groups, 2001-2006


• All positive, significant at 5%

0.17 0.80

0.35

0.78


Volatility & Correlation: NOR vs OFICoefficient of Variation (CV) Net Operating

RevenueTotal Household Income

By TypologyHighest Volatility Low-Income Farms Low-Income FarmsLowest Volatility Medium Farms Hobby Farms

By Commodity GroupHighest Volatility Beef Cattle Hogs and PigsLowest Volatility Dairy Cattle Greenhouses

Spearman’s Rank Correlation (rho)By Typology

Highest Correlation Very Large FarmsLowest Correlation Hobby Farms

By Commodity GroupHighest Correlation Dairy CattleLowest Correlation Fruits and Tree Farms



Major Trends in Volatility

Volatility of NOR, OFI increasing over time

OFI volatility increases with farm size NOR volatility lowest for medium farms

High volatility not always linked with low NOR or OFI Operators of very large farms have high volatility and NOR

Correlation Between NOR and OFI volatility increases with farm size


Possible Explanation for Trends

• Farm size vs OFI Volatility

– Operators of smaller farms more likely to adopt off-farm work, stabilize off-farm income

– Large-farm operators likely take on higher risk, specialize, reliant on farming as main source of income

– Low-income farm operators may not have time/resource for effective risk management, relies on farming as main source of income


Possible Explanation for Trends

Correlation Between NOR, OFI volatility increases with farm size Large-farm operators likely more reliant on farming as

main source of income Operators of smaller farms likely have off-farm work

Medium farms have lowest volatility in NOR Dairy operators make up majority of medium farm

operators Efficiency of scale? Best combination of diversification &

risk management?


Further Research

Relationship between size, volatility, and correlation Explain by off-farm work opportunities? Regression between CV & size, farm type,

typology, off-farm labour market characteristics

Low-income farm operators financially vulnerable How does current support programs affect

household income for these individuals?


Documents

Volatility of Farming and Operator’s Family Income of Canadian Farmers