An Analysis of Farm Structures & Incomes

Liam Connolly

Teagasc Research Centre, Athenry

Introduction

There has been much discussion on farm incomes in recent months. The debate on farm incomes, their levels and how they should be measured has revealed a considerable amount of uncertainty and confusion. This presentation outlines the current structure of Irish farms and attempts to clarify how farm incomes are measured and more importantly show the wide variation that exists within the overall "average" national farm income figure. The input of off-farm income to farm household income is also examined. The principal sources of data used are the Teagasc National Farm Survey and CSO agricultural income data.

Farm Structures

Agriculture is still an important sector in the Irish economy contributing 3.5% of GDP in 2001 compared to an EU average of 1.7%. The gross value added in the agri-food sector was €9.4 billion in 2001 accounting for 9.2% of GDP. Employment in the food, drink and tobacco sector was 53,300 (9.7% of total) in 2001, whilst employment in primary agriculture was 114,000 (6.5% of total). Agri-food exports make a significant contribution to Irelands foreign earning accounting for 8.4% of total exports in 2000.

The Census of Agriculture show that there were 141,500 farmers in 2000 down from 170,600 in 1991, a decline of 29,100 or 17% over the nine year period. The average farm size in 2000 was 31.4 ha compared to 26.0 ha in 1991 with 44% of farms under 20 ha and 24% over 50 ha. The 2000 Census of Agriculture shows that Irish farmers are on average younger than their EU counterparts with 13% under 35 years (11% EU) and 20% over 65 years (28% EU). The age structure of Irish farming has also improved since 1991, when 13% were under 35 years but 23% were over 65 years of age.

Teagasc has categorised farmers into a number of groups based on various viability criteria. Viability is assessed on the basis of financial return to labour at the average agricultural wage rate and also a 5% return or more on all non-land assets involved in the generation of the farm income. The data in Figure 1 is based on the 2001 National Farm Survey data.

Figure 1: Categories of Farmers 2001

Source: National Farm Survey, Teagasc

Viable Full-time Farmers

These account for 41,300 farms and are mainly dairy farms, tillage farmers and the larger drystock farms. The viable farms can be further subdivided into "viable small" and "viable large", the latter comprising farms with a minimum of 0.75 family labour unit input on Standard Man Day basis.

Non-Viable Part-time Farmers

These are non-viable farms where either the spouse or farmer has an off-farm job. The farms are mainly drystock and this category is likely to grow with declining farm incomes provided off-farm job opportunities are available.

Transitional Farmers

There are 42,600 farmers in this group composed of non-viable younger farmers (26,000) and non-viable older farmers (16,600). The younger non-viable group have non-viable farms but a relatively good household structure. Their best option for survival as farmers would be to obtain off-farm employment.

The above data refers to the position in 2001. The 2010 Report in its view of the position in 2010 forecast a decline in overall farm numbers to 100,000; with 20,000 full-time, 60,000 part-time and 20,000 transitional.

Trends in Farm Income

There are no shortage of data on farm income. Farm income referred to in this paper relates to income generated from the farm business and assets. This is the measure used by the CSO in monitoring annual returns to the agricultural sector and by Teagasc in its annual National Farm Survey. The CSO publish an annual account of output, costs and income arising from the agricultural sector. Teagasc carries out an annual National Farm Survey, the primary objective of which is to measure output, costs and incomes for the main farming systems and an overall estimate of average family farm income. Teagasc definition of farm income is gross output less total net expenses incurred in running the farm business. It therefore represents the return to unpaid family labour, management and capital investment in the farm business.

Aggregate income for the agricultural sector is shown in Table 1 for the period 1995 to 2002 in current and real terms (Base 1995 = 100).

Table 1: Aggregate income in Agriculture 1995 - 2002
	Agriculture Income current €m	Agriculture Incomes Real €1995 = 100
1995	2,597	2,597
1996	2,758	2,712
1997	2,566	2,486
1998	2,582	2,443
1999	2,311	2,152
2000	2,510	2,213
2001	2,614	2,198
2002	2,366	1,902

Source: CSO

The data shows that income arising in agriculture has declined in current terms by 9%, but when inflation is taken into account, farm income has declined by 27% in real terms.

The Teagasc National Farm Survey (NFS) measures farm income across the main farming systems with the exception of pigs and poultry. However since 1995 very small farms (under 2 ESUs) are excluded from the survey resulting in a representation of 120,200 farms in 2001 compared to overall farm numbers of approximately 140,000. Table 2 shows average Family Farm Income (FFI) per farm in current and real terms over the period 1995 to 2001.

Table 2: Average Family Farm Income (FFI) per farm 1995-2001
		FFI (Current) €/farm	FFI (Real 1995 = 100) €/farm
1995		14,236	14,236
1996		13,866	13,634
1997		13,711	13,286
1998		14,020	13,264
1999		11,505	10,712
2000		14,605	12,879
2001		15,840	13,324
2002	(forecast)	14,256	11,460

Source: Connolly, L. et al., National Farm Survey Teagasc

NFS data is available up to 2001, but applying the 2002 decline in incomes from the CSO aggregate statistics the results show a similar trend to that already outlined in Table 1 i.e. farm incomes declining in current terms over the period with much larger decline in purchasing power when inflation is taken into account.

Variation and Distribution in Farm Incomes

There is enormous variation in farm incomes which creates major difficulties in using one overall average figure to monitor returns to the sector on an on-going basis. This large variation in farm incomes for the different systems of farming therefore creates difficulties monitoring and analysing financial returns to the sector.

The variation in returns to the main systems of farming is shown in Table 3.

Table 3: Family Farm Income by system of farming 1995 and 2001 - all farms
	Dairying	Dairying/ Cattle	Tillage	Cattle Rearing	Cattle Other	Sheep
	FFI (€/farm)
1995	25,385	22,724	23,370	6264	7606	7928
2001	34,426	27,082	24,105	7278	7822	12126

Source: Connolly, L. et al National Farm Survey, Teagasc.

The data in Table 3 show two distinct sectors in Irish agriculture. Dairy and tillage farmers earn incomes four times greater than incomes on drystock farms. As a result in 2001 dairy farms accounted for 27% of all farms nationally but earned 54% of total income arising in agriculture, whilst drystock (Cattle and Sheep Farmers) accounted for 66% of all farms but only obtained 36% of total agricultural income. This huge variation in returns to the main systems of farming has been evident from the mid-1970's to date (Table 4).

Table 4: Percentage of farmers and incomes by farming system - 2001
	Dairying	Tillage	Cattle/Sheep
	FFI (€/farm)
No. farm	33,200	7,600	78,800
% Farmers	27%	6%	66%
% Income	54%	10%	36%

Source: Connolly, L. et al, National Farm Survey, Teagasc.

The variation in levels of farm incomes within the farm sector is also shown in Table 5 showing incomes less than €6,500 to over €40,000 per annum.

Table 5: Distribution of Family Farm Income 2001 (€000)
FFI €000	<6.5	6.5-13	13-20	20-25	25-40	>40
	% farms
	40	22	12	5	11	10

Source: Teagasc National Farm Survey

In 2001, 40% of farms had an income of less than €6,500 and of those 63% were in drystock systems. However on approximately 80% of farms in this group, the farmer and or spouse had some other source of income either from off-farm employment, pension or social assistance. Twenty one per cent (21%) of farms had a farm income in excess of €25,000 and 72% of farms in this group were in dairying. In the highest income group (10%) those with incomes over €40,000, 77% were in dairying and 13% were in tillage system. It is clear therefore that there are two distinct groups of farmers - the first earning extremely low incomes, whilst the second group represent the commercial sector of farming earning quite reasonable levels of income. The use of one overall average figure does not represent this variation in income distribution.

Full-time and Part-time Farms

National Farm Survey financial data therefore show that there are two distinct groups in Irish agriculture. The first group comprises smaller farms engaged in extensive drystock systems, yielding low profit margins, highly dependent on direct payments and off-farm employment. The second group are more dynamic having larger farms involved in the more profitable dairying and tillage systems, are less dependant on direct payments and they too have considerable off-farm employment. These can be also examined under full-time and part-time farms. This definition of full-time and part-time is based on the scale of activity and enterprise on the farm (minimum of 0.75 labour units on SMD basis) and is not linked to the presence or absence of an off-farm job.

Table 6: Family Farm Income - full-time and part-time farms - 2001 (€/farm)
	Dairying	Dairying/ Other	Cattle Rearing	Cattle/ Other	Sheep	Tillage	All
	FFI €/Farm
Full-time	37,400	32,700	15,800	22,100	25,000	37,000	31,000
Part-time	12,500	4,000	5,800	4,600	6,900	9,900	5,900

Source: National Farm Survey, Teagasc.

The data show the variation in financial returns for both full and part-time farms. Full-time farms account for 40% or 46,900 farms nationally, earning an average of €31,000 in 2001. This group represents the commercial or viable sector of Irish agriculture and 60% of these farms are in dairying with further 8% in tillage and the remaining 32% in drystock systems. Part-time farms account for 73,300 farms nationally or 60% of total farms. Almost 90% of part-time farms are in the less profitable drystock systems yielding an average farm income of only €5,900 in 2001.

Direct Payments

EU policy decisions have had a major impact on farm incomes and no discussion on incomes in agriculture would be complete without examining the effects of subsidies and direct payments. The impact of direct payments on farm incomes has increased significantly in the aftermath of the McSharry Reform of the early 1990's and again following the Agenda 2000 Agreement. These policy issues are now being reconsidered under the current Mid Term Review of the EU CAP.

Table 7: Direct payments (DPs) contribution to farm income 1990-2001
	1989	1995	2001
	%
D. Payments/Farm Income	15	47	71

A more detailed presentation of the impact of direct payments on the main farm systems can be seen in Table 8.

Table 8: Direct payments as % of Family Farm Income by farm system - 2001
Dairying	Cattle Rearing	Sheep	Tillage	All Systems
DPs as % of FFI
22	135	111	85	72

Source: Teagasc National Farm Survey

The data shows that for the drystock system (cattle and sheep) market output was not sufficient to cover total production costs and 35% of direct payments on the cattle rearing system had to be used to offset costs i.e. farmer income would have been 35% higher if all subsidies could have been retained. Dairying is less dependant on direct payments as butter and skim are supplemented through market and price support mechanisms.

Farm Incomes v Non-Farm Incomes

The comparable income used as a barometer to compare how farm incomes are performing viz-a-viz their non-farm counterparts is the Average Industrial Wage. This was the benchmark indicator used by Department of Agriculture and Food to compare farm and non-farm incomes in the operation of EU Farm Structure Schemes. The Average Industrial Wage is calculated per worker in industry and the data in Table 9 show average farm income calculated on a similar basis i.e. per family labour unit (unpaid) in farming.

Table 9: Average industrial wage and FFI per family labour unit (unpaid) for all farms, cattle rearing and dairying farms (€/labour unit)
	Av. Industrial wage	FFI/All Farm	FFI Cattle	FFI Dairying	Tillage
	€/Labour Unit
1995	17876	12167	6457	18394	20,146
2001	24490	14666	7503	24946	23,402
% Change 95/01	+37%	+21%	+16%	+35%	+16

Source: Connolly, L. et al., National Farm Survey, Teagasc

Data in Table 9 show that whilst average farm income over the period was only two-thirds of the average industrial wage, dairy farms and tillage farmers incomes per family labour unit were very similar to those of industrial workers, with incomes on drystock farms approximately one-third of the industrial wage.

Due to the variation within farm incomes it is more logical to compare incomes on full-time farms (as already defined with over 0.75 Labour Units on SMD basis) to that of average industrial workers as is shown in Table 10.

Table 10: Incomes for full-time farms and industrial workers (€/labour unit/annum 1995 - 2001)
	Full-time farms	Av. Industrial Wage
	€/labour unit		% difference
1995	17,800	17,900	+1
1996	18,000	18,400	+2
1997	17,800	18,900	+6
1998	17,800	19,900	+12
1999	16,400	21,300	+30
2000	20,400	21,900	+7
2001	22,900	24,500	+7

Source: CSO

Connolly, L. et al., National Farm Survey, Teagasc

It is important again in farming to take account of the labour involved. The outcome is shown in Table 10, which shows that if 1999 is excluded the difference between the two incomes averages at 6% in favour of industrial workers. Full time farms account for 40% of all farms and two-thirds of these are dairy or tillage farms.

Off-farm employment and Household Income

Off-farm employment has been growing since the 1980s. In 1993, 32% of farmer and/or spouse had an off-farm job. This has grown to 45% in 1999 and has remained static since then (Figure 2). On 33% of farms the farmer held the off-farm job and this also has plateaued in 2000 and 2001. In all years the incidence of the farmer having an off-farm job was highest in the small farm size group, whilst the spouse was most likely to have an off-farm job in the intermediate size groups. The drystock (cattle and sheep) systems have the highest incidence of the farmer/spouse having off-farm employment while the dairying system have the lowest off-farm employment in relation to the farmer only.

Figure 2 Off-farm job holder or spouse 1993-2001

The incidence of spouses off-farm employment is similar across all farming systems with an overall mean of 24% in 2001. On 64% of farms the farmer and or the spouse had some source of off-farm income, be it from employment, pension or social assistance. The impact of off-farm job on the farmer's income is shown on Table 11 for those farms where the farmer only had off-farm employment and the income arising from this was stated, and this is compared to farms where farmer has no off-farm job.

Table 11 : Estimates of off-farm income for the farmer only - 2001 (€)
	Off-farm Income	Farm Income	Total Farmers' Income
	€/farm
Farmer has off-farm job	18,900	6,800	25,700

Farmer has no off-farm job	Nil	32,800	32,800

Source: Connolly, L. et al, Teagasc National Farm Survey

In this section details of farm household income are examined. It is important to understand and make distinction between the farm as a business which generates income and return to assets involved in the sector, and income earned from non-farming activities e.g. wife teaching, son a builder, old age pensions etc. The CSO carry out periodic Household Budget Surveys to measure total household expenditure and income for all sectors of Irish society. In this survey households are divided into urban and rural. The rural households are further subdivided into rural households, which are located outside cities and towns and rural farm households which are defined as households where the principal occupation of the head of household is farming. The most recent Household Budget Survey was in 2000 and was published in 2002. It shows that 59% of farm household income comes from non-farming sources (including off-farm employment, social welfare and other direct income).

This 59% includes non-farm income earned by all members of the household and not just by the farmer or spouse. In the previous survey of 1995 the corresponding figure was 47%. The survey found that gross income on farm households was 5% less than the average for the state as a whole, but farm households are larger (3.56) than the average for the state (3.08), as shown in Table 12.

Table 12: Disposable Household Income - 2000
	Farm Household	Average State Household
	€
Disposable Income	29,694	28,760
Disposable Income per household member	8,341	9,338
Disposable Income per person employed	18,106	24,373

Source: CSO Household Budget Survey, 1999-2000

The CSO survey shows that whilst average disposable income is higher for farm households, when size of household and the number of persons at work is taken into consideration, average household income per person employed for the state is 35% higher than that on farm households. This is broadly similar to the difference found when average farm incomes were compared to average industrial wage. Rural farm households fare worst of all categories, when employment income per person at work is examined (Table 12). The CSO data show total income from off-farm employment is higher in farm households than in rural non-farm households. However on a per person at work basis farm workers have the lowest income of all categories. The conclusion is therefore that whilst farmers and farm households have acquired more off-farm employment over time - it is evident that this work yields relatively low incomes.

Summary and Conclusions

Agriculture is an important but declining sector of the Irish economy. Its contribution to employment, export earnings and GLP has been in decline over the last three decades.

The percentage of viable farms (based on Teagasc criteria) in 2001 was higher than during the 1990's but actual numbers have declined with falling number of farms. Two thirds of farms (79,000) were estimated to be non-viable based on 2001 criteria.

In the period 1995 to 2002 average farming incomes and aggregate agricultural income have remained static in current term but have declined by almost 30% in real terms.

Average farm income masks the huge variation which exists within systems of farming. Dairy and tillage farms earn incomes 4 times greater than cattle and sheep systems. As a result 40% of farmers earned less than €6,500 in 2001 (mainly cattle and sheep farms) whilst 21% of farms earned in excess of €25,500 (mainly dairy farms).

The importance of direct payments and subsidies contribution to farm income is increasing - from 15% in 1989 to 71% in 2001. Cattle and sheep farmers are much more dependant on direct payments than dairy farms.

Family farm income per labour unit for all farms is only two thirds of the average industrial wage but farm income per labour unit on full-time farms is only slightly less than the industrial wage.

Off-farm employment by the farmer/spouse increased from 32% in 1993 to 45% in 1999, but has remained static since then. Off-farm employment was predominant on small drystock farms.

An initial examination of the CSO Household Budget shows farm households obtaining reasonable gross and disposable incomes relative to urban and state households. However when account is taken of total household membership and also the number of persons earning this income, rural farms households fare worst of all categories.