Public Policy in Agriculture

Impact on Labor Supply and Household Income

Ashok K. Mishra, Davide Viaggi, Sergio Gomez y Paloma

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138652125
• eBook ISBN: 9781317228998
• Edition: 1
• Topic: Business
• Subtopic: Agribusiness
• Index: Business

In recent years, developed countries have formulated public policies in agriculture ranging from supporting rural life and farm income to promoting sustainability of food and fibre production.

Public Policy in Agriculture: Impact on Labor Supply and Household Income addresses the lack of empirical research in this area. It explores the impact of differing approaches to public policy through a series of international case studies, from the USA and Canada to South Korea, Norway, Slovenia and Taiwan. At a time when much of the developed world has been experiencing budget deficits and policy-makers and the public in general have re-opened the debate on public expenditures in the agricultural sector, this is a timely volume.

Mishra, Viaggi and Gomez y Paloma have written an authoritative guide to agricultural public policy that will serve as a reference for academics, researchers, students, and policy-makers.

Chapter 1

Introduction

Ashok K. Mishra, Davide Viaggi, and Sergio Gomez y Paloma

Governments in most developed countries have a strong tendency to engage in policies supporting risk management in agriculture. For example, the US New Deal programs, brought about as a result of the Great Depression, greatly inflating the price of food, included commodity price supports, marketing order, production controls, import barriers, and crop insurance that was instituted to reduce income risk for farmers. The particular structures of the federal farm programs have changed over time, but the central planning philosophy behind them has changed little over the past eight decades in the United States and among other industrialized nations (e.g., the Common Agricultural Policy of the European Union). The public policies were initially designed to reduce income risk and support rural populations that were heavily involved in production agriculture—where the main source of income was farming and the majority of the population resided in the rural areas. Most farms were organized such that family members ran the farm, supplied most of the inputs, and earned most of the income from farming.

In today’s farming, a farm’s organization and operation are not straightforward. Public policy in agriculture has given way to larger farms. The average farm size in the United States is about 437 acres and about 30 acres in the EU, and they often specialize in cash grain production. Farmers and families have additional time that they can allocate to off-farm activities. The political economy of agriculture in developed countries in the 1970s (Buttel, 1982) described part-time farming as a response to increasing social and economic inequalities among farmers, which led many producers to seek off-farm employment. He explained that the movement of industrial jobs into rural areas provided more opportunities for members of farm households to acquire off-farm employment (Barkley, 1990). In addition, “the social and economic deterioration of these industrial cities has led many former urban dwellers to move to farms while continuing to hold off-farm employment” (Buttel, 1982: 293). Some were choosing to combine on-farm and off-farm work not only to diversify their income sources to reduce risk, but also for the lifestyle, such as for a hobby or for a rural residence; and the desire for profits was not the main goal (Barlett, 1986). As is the case in other developed countries, part-time farming became viewed as a persistent aspect of the structure and culture of agriculture (Buttel, 1982; Rosenfeld, 1985; Barlett, 1986; Gasson, 1986; Buttel et al., 1990; Fuller, 1990; Sachs, 1996; Kimhi, 2000). Buttel (1982) stated: “It is widely recognized that part-time farming in the United States tends to reflect a relatively stable or permanent combination of farm and non-farm work throughout most of the life cycle, instead of being a transitional status of entrance into and/or disengagement from farming” (p. 294). Similar trend has been noticed in the European Union—especially countries whose agriculture is driven by the Common Agricultural Policy (Benjamin and Kimhi, 2006).

In addition to government subsidies, farmers are also using other income risk management tools. These include futures and options, hedging and crop insurance. Additionally, many farmers are supplementing farm income from off-farm sources, such as working off the farm for wages or a salary. This is especially true for small farms, whose gross cash income is less than $250,000. Small farms account 91% of all farms and 23% of agricultural production. Small farms have a product mix distinctly different from that of larger farms: small commercial farms focus on commodities that do not necessarily require a full-time commitment of labor (Mishra et al., 2002). Therefore, small-farm households depend heavily on off-farm income—self-insurance strategy and the non-farm economy are important to them. As a result, the continuing evolution of production agriculture, government fiscal deficits, and changes in farms’ families and structure raises a variety of issues to consider in developing policy for modern farms and rural households (Gardner, 2002).

In recent years, 85%–95% of farm household income has come from off-farm sources, including employment earnings, other business activities, and unearned income. The relative importance of off-farm income varies considerably from farm to farm, and declines as farm commodity sales increase (Mishra et al., 2002). However, even among the largest farming operations, 8% of farming operations with annual sales exceeding $250,000, off-farm income accounts for 24% of farm household income on average. For the 83% of US farming operations that have annual sales of $250,000 or less, off-farm income typically accounts for all but a negligible amount of farm household income.

Today the economic well-being of farm households not only depends on the income from farming but to a large extent an income from non-farm employment as well. The fact that nearly 80% of total household income originates from off-farm sources, with income from off-farm wages and salaries being the major contributor, is a case in point to the importance of these sources of income to farm households (Mishra et al., 2002). The closing of the income gap, which has materialized in recent years, has been attributed to the growth in the earnings from off-farm sources. To generate income, farmers and their families make decisions about whether to work on the farm, off the farm, or a combination of both, which has implications for income and wealth accumulation for households, food consumption and savings.

There are several problems with government support in agriculture. First, the federal subsidies for farm businesses are costly to taxpayers, and it damages the economy. Second, subsidies induce overproduction and inflate land prices in rural America. The flow of subsidies and regulations from Washington, D.C., or Brussels, in the case of the European Union, hinders farmers from innovating, diversifying their land use, and taking other actions needed to prosper in a competitive global economy. Third, subsidies do not reach the targeted group. For example, almost 30% of agricultural subsidies go to the top 2% of farms and over 80% to the top 30%. In short, the design of such polices in agriculture has been skewed, and small farms have not received many benefits from these subsidy programs (Gardner, 2002).

Given this new paradigm, there has been conflicting evidence on the impact of public policy on labor allocation of farm families. For example, from a macroeconomic perspective, it has been found that public policies have no impact on migration of labor out of agriculture. But recently empirical evidence, in many developed economies, at the microeconomic level has found that public policies designed to support farm income have a negative impact on farming times and have increased off-farm labor supply of farm families. Such policies not only have an impact on labor allocation decisions but also affect farm inputs, such as farmland values, variable inputs, and the transfer of farm business. These effects are differentiated according to different policy instruments; for example, there is evidence in the EU that while investment subsidies have halted labor shedding on farms, changes in direct payments had no employment effects (Petrick and Zier, 2012). Other evidence suggest that while labor reallocation due to policy changes may be negligible for active farms, agricultural policies can strongly affect labor reallocation throughout the sector (Raggi et al., 2013).

Finally, despite the increased attention being paid to public policy in agriculture in developed countries in global trade, the World Trade Organization, academic and agricultural economics and economics literature, solid research on the consequences of public policy in agriculture is still quite limited. Specifically, the literature lacks a common source of information on assessing the impacts of public policy on labor allocation decisions, input usage, household income and food security as it relates to industrialized nations. For example, evidence from Canada, the United States, and European countries shows that off-farm labor supply has a larger impact on rural households’ income, then it yields lessons that public policy in agriculture is not sound legislation—perhaps resulting in a deadweight loss to society in general. Additionally, income diversification via off-farm work is associated with higher incomes and food consumption (Reardon, Delgado, and Matlon, 1992). However, little is known about the association between off-farm work and farm household food expenditures among developed economies. This edited volumes intends to provide readers, with various backgrounds, information on policy interventions in the agricultural sector by the governments in developed economies and their consequences on labor allocation, land use, farmland valuation, environment, and farms’ succession decisions.

This book has 19 chapters. Chapter 1 is devoted to establishing the agriculture policy of developed countries and introducing the idea of farm families taking off-farm jobs in order to supplement their income. It also speaks about how the off-farm jobs are usually taken by spouses and children, and the farmers who take extra jobs are often those who own small- to medium-sized farms, while large farm owners make enough from farm operations to turn a profit. Chapter 2 covers the drivers of agricultural policy, and how the policy is related to the globalization and technological advancement of agriculture. It then gives a description of how farm size affects policy and what subsidies the farm receives. Chapter 3 focuses on Bulgarian and Greek farms, and how public policy affects the farm based on a variety of factors, including former employment, gender, emigration and immigration, among other factors. The main focus in on social sustainability, and how farmers’ social activities could drive how they are affected by policy.

Chapter 4 speaks about how rural structures affect farms and agricultural policy in Romania. The country has had a difficult time since the fall of the Communist Bloc, and it has been a troublesome transition to a market economy. Romanian society faces several challenges due to their reliance on maintaining the historical peasant culture as well as the population’s obedience towards oppressive regimes. Chapter 5 provides specifics about how farms are defined in Canada. This is a very important distinction, due to the fact that how a farm is defined affects what subsidy it receives, and how much they receive. It also covers how subsidies and earnings are distributed amongst the farms and farmers. Chapter 6 discusses how agricultural policies in the United States affect household income for farmers and labor. It discusses how current policy is designed around reducing the risk in farming, and keeping the farmers in business through labor policies. Chapter 7 is about the rise of part-time farms in Canada. Part-time farms are rather ill-defined, but policy needs to include them as they begin to grow in number. These types of farms have to have special consideration, since part-time farm operators almost always have other jobs than on their farms. Chapter 8 is devoted to comparing farm incomes to non-farm incomes and how policy affects farm incomes. A main point is that farmers, while having an income level almost equal to the non-farm population, suffer more greatly from poverty and income disparity.

Chapter 9 focuses on farm policy in Norway, and how agricultural policy in that country is mainly devoted to exports and has a smaller production due to the geographic makeup of the country. The main idea is that since Norwegian agriculture is limited, Norwegian farmers are more likely to take off-farm jobs. Chapter 10 introduces the CAP, the Common Agriculture Policy, of the European Union. Recently there was a new method of distributing subsidies introduced, the Basic Payment Scheme. The chapter aims to quantify the changes in the total budget allocation and in the average decoupled unit payments under the post-2013 CAP, in comparison to the former CAP, and to assess to what extend the post-2013 CAP will reduce the intra and inter-MS (member states) disparities in the distribution of funds.

Chapter 11 expands on the CAP issues, focusing on the environmental efforts of the CAP, referred to as Greening. It features several economic models, showcasing how a shift away from the Greening would affect the CAP and farm incomes. Chapter 12 covers how farm policies are related to the real estate value of farms. It has several models, showing how policies affect farms, based on political parties and other variables. It also takes crop insurance into consideration, showing that crop insurance is one of the most important aspects of farm policy. Chapter 13 describes European land markets and how different institutions affect those markets. It establishes the different land classifications and how EU environmental regulations are related to the land markets. Chapter 14 provides a look at South Korean farms and how governmental subsidies affect the farmers through regression analysis. It focuses on farmland values and how they are affected by government subsidies, and how those subsidies are capitalized.

Transitioning a family business to the next generation often begins with naming a successor. Chapter 15 investigates the factors that lead farm business owners to name a successor for the business. This chapter shows sufficient levels of capital, intentions to sell or give the business to family members, regular discussion of goals, estate planning, the senior generation feeling prepared to hand down the business, the number of generations in management of the business, and the owner’s years of experience all have an effect on a family business naming a successor.

The younger generation is not interested in the farming sector, and this has been noted by several developed countries in the European Union. Chapter 16 discusses the use of Common Agriculture Policy (CAP) in bringing back young people to farming sector. Specifically, the chapter analyzes the impacts of common agricultural policy on farm succession in Slovenia. The author shows that the EU’s common agricultural policy has been effective in promoting the takeover of farms and their timely transfer to young successors. Chapter 17 discusses how elderly farmers in Taiwan are receiving pensions, and whether these pensions affect the younger adults in the family. It finds that the pension program increases young farmers working off farm, since their elderly relatives already receive support through the pension. Chapter 18 provides a review of current literature related to farm succession and inheritance, and the differences between the two. It also provides a brief discussion of the effects of a farmer designating an heir, rather than letting the farm pass out of the family. Finally, Chapter 19 provides concluding remarks.

References

Barkley, A. P. (1990) The determinants of the migration of labor out of agriculture in the United States, 1940–85. American Journal of Agricultural Economics 72(3): 567–573.

Barlett, Peggy F. (1986) Part-time farming: saving the farm or saving the life-style? Rural Sociology 51(3): 289–313.

Benjamin, C., and A. Kimhi (2006) Farm work, off-farm work, and hired farm labour: estimating a discrete-choice model of French farm couples’ labour decisions. European Review of Agricultural Economics 33(2): 149–171.

Buttel, Fredrick H. (1982) The political economy of part-time farming. GeoJournal 6(4): 293–300.

Buttel, Fredrick H., Olaf F. Larson, and Gilbert N. Gillespie, Jr. (1990) The Sociology of Agriculture. New York: Greenwood Press.

Fuller, Anthony M. (1990) From part-time farming to pluriactivity: a decade of change in rural Europe. Journal of Rural Studies 6(4): 361–373.

Gardner, B. (2002) American Agriculture in the Twentieth Century. Cambridge, MA and London: Harvard University Press.

Gasson, Ruth. (1986) Part time farming strategy for survival? Sociologia Ruralis 26(3–4): 364–376.

Kimhi, A. (2000) Is part-time farming really a step in the way out of agriculture? American Journal of Agricultural Economics 82(1): 38–4...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Contents
• List of figures
• List of tables
• List of contributors
• Acknowledgements
• 1 Introduction
• 2 The relationship between farm families and the structure of agriculture
• 3 Influence of CAP on social sustainability in Greek and Bulgarian rural areas
• 4 The evolving patterns of rural structures under the impact of public policies in Romania
• 5 Households associated with agricultural holdings: selected socio-economic dimensions
• 6 The effects of U.S. agricultural policies on farm household income and labor
• 7 Part-time farms in Canada: changing concepts and changing policy
• 8 Farm household incomes in OECD member countries over the last 30 years of public support
• 9 Farm labor and farm income: case study from Norway
• 10 Does the post-2013 CAP reduce the disparities in the distribution of decoupled payments across Europe? A farm-level assessment
• 11 CAP post 2013: effects of a shift from Pillar I to Pillar II: changes on land use and market effects among types of farms
• 12 Contribution of public policies to farm real estate values
• 13 Land markets in Europe: institutions and market outcomes
• 14 Impact of public subsidy on farmland values: the case of South Korea
• 15 The succession decision: the case of small- and medium-sized midwestern farms
• 16 The impacts of common agricultural policy on farm succession in Slovenia
• 17 Does the elderly farmer pension program affect the off-farm labor decisions of younger adults in family farms in Taiwan?
• 18 Succession decisions in family farms and public policies in developed countries
• 19 Concluding remarks
• Index