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Volatility of Farming and Operator’s Family Income of Canadian Farmers
Kenneth PoonUniversity of Guelph
AGRI Research Group, Statistics Canada
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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
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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
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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
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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
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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
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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
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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
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• 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
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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
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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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
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
0.731.342.75
0.360.681.29
CV of NOR at selected percentiles, 2001-2006
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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
)
Low Income Pension Hobby Small Medium Large Very Large
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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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)
Low Income Pension Hobby Small Medium Large Very Large
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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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
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
0.210.390.82
0.631.172.38
0.490.862.23
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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
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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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)
Grain & Oilseed Potatoes Fruit and Tree Nuts Greenhouses, etc
Beef Cattle Dairy Cattle Hogs & Pigs Poultry & Eggs
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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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
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
0.460.761.21
0.410.711.20
0.150.310.57
0.200.350.58
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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
)
Low Income Pension Hobby Small Medium Large Very Large
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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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)
Low Income Pension Hobby Small Medium Large Very Large
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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Volatility of Commodity Groups
CV at Grain & Oilseed PotatoFruits and Tree Nuts
Greenhouses, Nurseries, Floriculture
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
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
0.290.420.75
0.240.460.73
0.200.330.57
0.160.300.55
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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
)
Grain & Oilseed Potatoes Fruit and Tree Nuts Greenhouses, etc
Beef Cattle Dairy Cattle Hogs & Pigs Poultry & Eggs
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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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)
Grain & Oilseed Potatoes Fruit and Tree Nuts Greenhouses, etc
Beef Cattle Dairy Cattle Hogs & Pigs Poultry & Eggs
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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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
Greenhouses, Nurseries, Floriculture
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
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
• All positive, significant at 5%
0.17 0.80
0.35
0.78
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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
SOURCE: Farm Micro-Longitudinal Dataset, 2001-2006
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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
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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
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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?
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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?