Farm income variability and off-farm employment in Ireland

Abstract

Purpose The purpose of this paper is to identify the potential relationship between farm income variability and off-farm employment decisions in the short and medium term for the case of Irish farm operators. Design/methodology/approach Panel probit models of off-farm labour supply are estimated using Teagasc National Farm Survey data for Irish farms. The framework is based largely on standard expected utility but includes a constraint for recent employment history. Findings The analyses identifies some evidence of a positive association between farm income variability and off-farm employment in the medium term but no significant relationship in the short term. This suggests that off-farm employment is part of a wider portfolio decision but is not a strong solution to short-term farm income shocks. Practical implications European farmers increasingly face high income variability but financial risk management tools are not sufficiently developed or widely accessible to assist farmers in managing the associated risk. This deficiency can have negative implications for household economic welfare and future farm investments and hence the future farm income. Off-farm employment can form part of a wider medium-term portfolio strategy but more effective tools are also required for risk management particularly in dealing with short-term volatility and where off-farm employment is not a realistic endeavour given time constraints and/or demographics. Originality/value The estimation of farm income variability includes a detrending method thus reducing the likelihood of overestimating farm income variability for farms in deliberate expansion or decline. While previous research has typically focused on the short-term response of farmers to historical farm income variability, this research has distinguished between the short and medium term.