Assessing Farm Level Viability

Andrew Barnes, Shailesh Shrestha, Steven Thomson, Bouda Ahmadi (SRUC Policy Analysis Team)

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Farm Level Viability

• Sustainable development of the industry relies of farms being financially viable

• CAP reform and local policy is informed by derivation of fragility indicators across both biophysical and financial vectors

• Aim: to identify farm viability over long time period to understand change and drivers of change

33

Data Used

• Farm Account Survey– Unbalanced Panel (2000 – 2011)– Average of 461 (+/- 23) farms per year– Biases involved (Minimal size to entry into the FAS,

voluntary, though mostly maintain presence over a number of years).

– Though dropped farms with less than 3 years continuous entry in order reflect viability over time.

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Short term and Long-term Viability

• Short-Term Viability: Cash Income/hrit ≥ Min AvWaget

• Long-Term Viability : Net Farm Income/hrit3 ≥ Min AvWaget3

[three year moving average]

-100

01

00

200

300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

NFI CINCAgMinWg

55

Three States of Viability (%)

66

Markov transition probabilities from one state to a different state over time

ST Viable Viable Non-Viable

LT Viable Non-Viable Non-Viable

ST LT Previous State 1 2 3

Viable Viable 1 0.86 0.10 0.04

Viable Non-Viable 2 0.29 0.55 0.16

Non-Viable Non-Viable 3 0.26 0.25 0.50

Markov chain

Transition Probabilities

77

Explaining Change

RRR SigShort-term non-viable/ ftypeAlt 1.09 **

Long-term viable size 0.58 ***tenure 0.79 ***

hnv 1.13 *t 0.95 ***

Short-term non-viable/ ftypeAlt 1.23 ***Long-term non-viable size 0.35 ***

tenure 0.96 **hnv 1.40 ***

t 0.99 -

Relative Risk Ratios (RRR) measured against viable groupNote: <1 means more likely to be in viable group

Short-term viable / Long term non-viable

88

Survival estimates by farm size

0.0

00

.25

0.5

00

.75

1.0

0

0 5 10 15analysis time

size = 1 size = 2size = 3

Kaplan-Meier survival estimates

99

Survival estimates by LFA status

0.00

0.25

0.50

0.75

1.00

0 5 10 15analysis time

lfabin = 0 lfabin = 1

Kaplan-Meier survival estimates

1010

Further Work

• Adjusting ST and LT viability indicators for CAP reform scenarios (build up from FAS data)

• Inform CAP level modelling work (farm level models)

• Linking with the Census to regionalise assessments of viability