Income Distribution of Canadian Farm and Non-Farm Families Organization for Economic Cooperation and Development Network for Farm Level Analysis March 9, 2010 10-008-dp 1
Purpose To use longitudinal data to illustrate the distribution of family income and the change in distribution over time for farm families and non-farm families To compare the distribution and concentration of farm family income by farm size 10-008-dp 2
Outline of Presentation Purpose Benefits of Longitudinal Data Assumptions and Definitions Distribution of Farm & Non-Farm Family Incomes (rural and urban) Distribution of Farm Families Income by Farm Size Summary Purpose 10-008-dp 3
Benefits of Longitudinal Data Family income based on a five-year average is a better indicator of family well-being than annual data which can fluctuate from year to year On an annual basis farm family income can fluctuate due to a number of factors including changes in commodity and input prices, cash accounting, large capital purchases and changes in off-farm income. As such, family income based on yearly income may not reflect the true family well-being Benefits of Longitudinal Data 10-008-dp 4
Assumptions Used in the Analysis **** Three five-year longitudinal periods ending in 1996, 2001 and 2006 were selected Total family income (before-tax) is averaged for the five year periods and then sorted into quintiles Variables by income quintiles total family income family disposable income total family income by source number of years family reported positive net income from farming Assumptions & Definitions 10-008-dp 5
Longitudinal Administrative Databank (LAD) Twenty per cent sample of the taxation records of families (T1 Family File); includes only unincorporated farms T1 Family File links tax-filers with family members to calculate total family income LAD uses an identifier to maintain a sample of the same tax-filers and their families over a period of years; these families will remain in the sample as long as the main tax-filer files a tax return Farm families are put into 4 farm size categories (small, medium, large & very large) Non-farm families are where the main tax-filer reports zero gross farm income Rural and Urban areas are defined using Statistics Canada s Statistical Area Classification Assumptions & Definitions 10-008-dp 6
Average total income of farm families was lower than urban families and higher than rural families in every time period Thousands of dollars Farm family income increased by 49.7% between 1992-1996 and 2002-2006 on average while the Consumer Price Index increased by 29.1% 80 70 60 50 40 30 20 10 0 Average total family income, by family type, Canada 1996 2001 2006 All farm families Urban non-farm families Rural non-farm families Distributions of Family Income 10-008-dp 7
Smaller differences exists between median family income than the mean 1992-1996 1997-2001 2002-2006 Farm families Rural families Average Median Average Median Average Median 46,970 37,940 56,080 44,610 70,340 54,370 42,740 36,870 50,140 41,960 62,720 52,200 Urban families 53,590 44,790 63,070 50,040 76,060 59,120 Distributions of Family Income 10-008-dp 8
The distribution of income of farm and urban families was very similar in the 2002-2006 period by quintile Thousands of dollars On average, the income level of farm families was lower than urban but higher than rural in every quintile Average Total Family Income, by Family Type, 2002-2006 Rural non-farm families had lower income levels in every quintile compared to farm and urban families 200 180 160 140 120 100 80 60 40 20 0 All farm families Rural nonfarm Urban nonfarm Q1 Q2 Q3 Q4 Q5 Distributions of Family Income 10-008-dp 9
Percent However, the top twenty percent of families accounted for an increased share of total income over the three time periods The top twenty per cent of farm and urban families accounted for a similar share of total family income 48 Share of Income of Families in the Highest Income Quintile 46 44 42 40 38 Farm families Rural nonfarm Urban nonfarm 1996 43.4 41 43.2 2001 44.6 42.3 45.8 2006 46.5 42.9 46.9 Distributions of Family Income 10-008-dp 10
The top income quintile was the only quintile to account for an increased share of total family income over time The share of income reported by farm families in the lowest income quintile dropped from 6.2% in 1996 to 5.2% in 2006 The percentage of total income reported by all farm families in the highest income quintile increased from 43% in 1996 to 46.5% in 2006 The percentage of total income reported by all families in quintiles 2, 3 and 4 also declined in each successive time period Percent of Income by Quintile, Farm Families Quintile 1996 2001 2006 1 6.2 5.8 5.2 2 11.4 11.1 10.5 3 16.2 16.0 15.6 4 22.8 22.5 22.2 5 43.4 44.6 46.5 Distributions of Family Income 10-008-dp 11
Thousands of dollars The income of farm families increased in all farm size classes The income level of large and very large farm families was higher on average compared to medium-sized farms Small farm families earn most of their income from non-farm sources and report higher income levels compared to medium-sized farm families 100 80 60 40 20 0 Average Total Farm Family Income, by Farm Size 1996 2001 2006 Small Large Medium Very Large Distributions by Size 10-008-dp 12
In contrast to the average, at the median the income levels of large and very large farm families were similar 1992-1996 1997-2001 2002-2006 Average Median Average Median Average Median Small 46,460 36,990 56,450 43,850 70,380 53,520 Medium 45,020 38,640 52,180 44,400 66,340 54,440 Large 53,860 43,940 59,440 50,370 73,390 59,980 Very large 61,600 44,830 69,510 48,700 83,780 58,790 Distributions by Size 10-008-dp 13
In 2002-2006, all farm size classes had large differences in family income by quintile Thousands of dollars Families in the highest income quintile on very large farms reported $223,000 income on average in 2002-2006 The 60% of farm families in the middle three quintiles showed similar income levels regardless of farm size category Average Total Income by Income Quintile, 2002-2006 250 200 150 100 50 0 Small Medium Large Very large Q1 Q2 Q3 Q4 Q5 Distributions by Size 10-008-dp 14
Percent Farm families in the highest income quintile accounted for a increased share of total family income over time regardless of farm size Over the three time periods: A large (53%) and increasing share of total family income of families on very large farms went to the 20% of families in the highest income quintile The share of total income reported by families in the highest income quintile was largest for small and very large farm families Share of Income of Farm Families in the Highest Income Quintile 60 50 40 30 20 10 0 1996 2001 2006 Small 44.4 45.7 47.3 Medium 39.6 40.5 43.3 Large 42.3 42.1 43.1 Very large 47.4 50.3 53.6 Distributions by Size 10-008-dp 15
Summary The average total income level of all farm families was lower than that of urban but higher than that of rural non-farm families in every time period but have similar distributions Farm families in the highest income quintile accounted for almost half of the total income reported by all farm families; Farm families in the highest income quintile accounted for in increased share of total income in each successive time period In the most recent time period (the five-year period ending in 2006) the average income level of very large farm families in the highest income quintile ($223,000) was higher than for all other farm families in all other quintile groups The very large farms had the largest variation in farm family income The increase in percentage of income within the highest income quintile was largest for families on very large farms Summary 10-008-dp 16
Farm families represent a small proportion of all families in the sample 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Farm Rural Urban 1996 56,640 512,580 2,255,020 2001 55,820 491,020 2,542,220 2006 51,470 492,990 2,818,220 10-008-dp 17
Number of families The sample indicates that a large but declining share of all farm families operate a small farm 50,000 40,000 30,000 20,000 10,000 0 Small farm Medium farm Large farm Very large farm 1996 40,220 12,430 3,110 880 2001 38,290 11,970 4,170 1,390 2006 35,540 9,770 4,380 1,790 10-008-dp 18