Time Allocation by Farm Households and Endogenous Farm Structure: Implications for Ag. Policy. Ashok K. Mishra

Transcription

1 Time Allocaion by Farm Households and Endogenous Farm Srucure: Implicaions for Ag. Policy Ashok K. Mishra

2 Inroducion I is ypical o focus policy quesions on he agriculural business (e.g., concenrae on farm income raher han farm household income) We ake a differen approach and consider he household uni as a whole We argue ha any meaningful consideraion of farm policy mus consider he farm household in is enirey

3 Overview Our cenral quesion How do farm policies affec: Farm household ime allocaion decisions Farm srucure (is i endogenous o policy?) This is rue in he policy formaion process (e.g., Congressional rheoric) applied research Imporan o remember ha mos farm households ge majoriy of income from off farm aciviies Off farm income accouns for more han 85% of household income 59% of farm household have dual employmen Varies wih farm size

4 A Brief Overview of Policy Design Issues We are ypically concerned wih he producion (or marke) impacs of policies Taxonomy of policies under WTO: Green box policies ( decoupled and oher means of suppor) Amber box policies ( coupled suppor) An array of oher policies Considerable recen debae over decoupling: Are decoupled paymens producion neural? Are paymens ha are no ied o producion bu are ied o markes (e.g., CCP and marke loss assisance) producion neural? Wha is he relaionship beween decoupled policies and expecaions abou fuure policies?

5 Decoupling and Objecive How migh fixed, direc paymens affec producion? Wealh effecs on risk aiudes (DARA) Easing of credi consrains in incomplee credi markes Effecs on asse prices and renal raes Wealh effecs on ime allocaion consumpion of more leisure Changes in farm srucure (perhaps due o signals abou fuure policies such as base updaing) These las wo effecs are he focus of his paper Growing lieraure on decoupling bu no clear consensus

6 Farm size, off farm work, and governmen paymens are relaed (Mishra e al., 2002). Addiionally, governmen paymens have an impac on off farm work (Ahearn e al., 2006; El Osa e al., 2005; Mishra and Goodwin, 1997, 1998; Dewbre and Mishra, 2007). Le s see some rend in farm size, off farm work, and governmen paymens.

7 In US a rise in average farm size US Acres per farm Source: Census of Agriculure

8 .off farm work (full ime), 44 Percen of operaors US Source: Census of Agriculure

9 .governmen paymens Average per farm ($) US Source: ERS, USDA

10 .farm household income. 90,000 80,000 Farm Off farm 70,000 60,000 Dollars 50,000 40,000 30,000 20,000 10,000 0 Cornbel Source: ERS, ARMS, 2005 US

11 governmen paymens.,and 14,000 12,000 10,000 Dollars 8,000 6,000 4,000 2,000 0 Source: ERS, ARMS, 2005 Cornbel US

12 more off farm work Operaor Spouse Boh 25 Percen Source: ERS, ARMS, 2005 Cornbel US

13 Concepual Model Exensive lieraure on off farm labor supply Mos sudies rea farm srucure as exogenous Develop simple, muli period model o demonsrae ha farm srucure may be joinly deermined wih oher household decisions Agen maximizes he expeced value of a discouned (a a rae of ) sum of a household level uiliy funcion having a single consumpion good q and leisure L as argumens: T + j δ U + j, + j j = 0 ( q L )

14 Model (con ) The uiliy of a household in each period is governed by he following income consrain: f ( M ) ( ), G Q f X, F, Z V P q q W w O + p, + X represens variable facors of producion, F and O represens farming and off farm labor ime, Z represens producion inpus ha are fixed in he shor run bu variable in he long run, V represens facors ha are fixed overall ime periods (e.g., facors relaed o locaion such as climae, ec.), W represens liquid wealh available for consumpion in period p f (G ) represens farm produc prices which may be influenced by governmen policies (G ) and exogenous marke facors (M ).

15 Model (con ) Adjusmen process of hose facors ha are fixed in he shor run would ake he general form of: Z ˆ Z + 1 = Z + γ ( Z ˆ ( V ) Z ) represens opimal long run level of semifixed facors In long run, individuals choose hose values of O, F, X, and Z in order o maximize he long run sum of he expeced uiliy of profis. Ineresed in examining he inerrelaionships among farm srucure and ime allocaion decisions

16 Empirical model Need o define a srucural empirical model ha relaes farm srucure o off farm labor supply and vice versa. esimable equaions of he following form: farm srucure Z ˆ = i Off farm labor supply O = i f ( O, V, G, W, M ) (1) g i i i i ( Z ˆ, G, W, M ) (2) i i i i i

17 Daa and oher variables Sraified sample of 12,935 farms (6,809 crop farms) Daa cover 2003 and 2004 (2002 Farm Bill provisions) Use several sources for couny daa REIS, Census, FSA Paymens daa (consruc long run expeced values) Two measures of scale Acres operaed (for all farms) Harvesed acres for crop farms Scope measured by Herfinndahl index of diversificaion: J 2 H = 1 w i j = 1 ij

18 Daa and esimaion procedure Farm paymens were grouped ino hree aggregaed caegories coupled paymens (deficiency and loan deficiency paymens and markeing loan gains) direc (decoupled) paymens (AMTA paymens, direc paymens, CCP, and ad hoc marke loss assisance paymens) all oher paymens (disaser relief and residual) Solve for simulaneous equaion sysems. Nelson and Olson (1978) wo sage Tobi esimaion procedure endogenous righ hand side variables are replaced by he sandard maximum likelihood Tobi esimaes of a firs sage regression of he censored variable on an insrumen se. 2 labor supply equaions (operaor and spouses) Farm scale and scope equaions Use probabiliy weighed boosrap o address sraificaion and endogeneiy of censored variables.

19 Daa (con ) The average farm in our sample consiss of 464 acres average operaor was 55 years of age, wih 24 years of farming experience, household wih 3 family members. Boh he farm operaor and he spouse worked an average of abou 1,000 hours in off farm employmen aciviies over a year. abou 54% of farm operaors repored some offfarm work over he space of a year while nearly 60% of heir spouses repored having worked off he farm.

20 Resuls (off farm labor) Demographic variables Work endogenous o one anoher more off farm work by operaor correlaed wih more by spouse and vice versa Spouses end o share similar aiudes, opporuniies, and consrains. Paricipaion rises wih educaion for boh, subsanially sronger for spouse Paricipaion diminishes wih age for boh operaor and spouse Spouses wih large household (children) less likely o work Farming experience reduces off farm work for boh operaor and spouse Falls wih couny unemploymen for spouse Spouse labor supply may be more volaile in response o diminished work opporuniies

21 Resuls (con ) Agriculural marke variables Higher farming rae of reurn lowers off farm work of operaor More farm risk causes less operaor off farm work, bu more by spouse Governmen program paymens Spouses work less off farm wih more decoupled paymens, bu more wih greaer coupled paymens (condiioned on farm srucure) Paymens don' direcly impac off farm work of operaors Farm srucure variables Larger and diversified farms end o lower he off farm labor of operaors Diversified farms end o increase he off farm labor of spouses

22 Farm size Resuls (farm srucure) Srucure endogenous o labor choices more offfarm work means smaller srucure and vice versa Reinforced from previous resuls on labor allocaion and scope and size (+) for livesock producion, counies wih considerable amoun of livesock producion ( ) high value producion greaer value of oupu per acre end o smaller. Direc paymens sugges less acreage Coupled paymens sugges more acreage Highly diversified farms are larger (possibly greaer land demand for diversified producion)

23 Resuls (con ) Farm scope Diversificaion does no appear o be endogenous o off farm labor supplies Large farms end o be diversified Diversificaion falls wih coupled paymens, rises wih decoupled paymens (policy shaping farm srucure) Diversificaion rises wih couny level of diversificaion Characerisics of he couny affec farm srucure

24 Implicaions and Conclusions Farm srucure and household ime allocaions are significanly relaed o one anoher Operaors on larger and more diversified farms end o work less off he farm Size is endogenous o off farm work decisions (smaller for working operaors, larger for working spouses) Policy very imporan in shaping farm srucure and ime allocaion

25 Policy Implicaions Direc (decoupled) paymens associaed wih Less off farm work by spouses Smaller scale of producion (and hus less on farm work) More diversificaion Resuls sugges an addiional avenue for agriculural producion effecs from decoupled paymens hough changes in he work effor of farmers and spouses Generally indicae decoupled paymens lower producion hrough wealh effecs on ime allocaion Coupled paymens associaed wih more off farm work by spouses and larger farms (and hus more work onfarm)