Analysis: Off-farm income remains the sector's prime defence against market volatility

Buffer: The availability of non-farm income gives farm households the confidence that they can extreme weather events such as 2018's spring snow storms and summer drought, adverse production shocks or temporary periods of low prices.
Buffer: The availability of non-farm income gives farm households the confidence that they can extreme weather events such as 2018's spring snow storms and summer drought, adverse production shocks or temporary periods of low prices.

Alan Matthews

Sustainability has a number of dimensions, including economic, environmental and social sustainability. One of the indicators of economic sustainability used by Teagasc is economic viability.

A farm is deemed to be economically viable if family labour is remunerated at greater than or equal to the minimum wage, and there is sufficient income to provide an additional 5pc return on non-land based assets employed on the farm.

Around 37pc of all farms were economically viable based on this definition in the period 2015-17, implying a rate of non-viability in economic terms of 63pc.

In terms of social sustainability, one of the indicators is household vulnerability. A farm household is deemed vulnerable if it is not economically viable and the farmer or farmer's spouse has no off-farm employment income source.

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In other words, farm households are deemed resilient even if the farm business is not economically viable, provided the household has a source of off-farm employment income.

The Teagasc National Farm Survey reports that just over half (52pc) of farm households had an off-farm employment income source in 2018. The share for farmers alone was 33pc, and a similar share of farmers' spouses had off-farm employment income.

As a result, the proportion of vulnerable farm households (non-viable and with no off-farm employment) was only half the proportion of non-viable farms alone (33pc compared to 63pc). This shows the importance of off-farm employment income in ensuring the social sustainability of farm households.

A relatively new series of figures from the Revenue Commissioners provides a breakdown of the gross income of taxpayers identified as farming cases. These are taxpayers who identify themselves as farmers when completing their self-assessment forms or otherwise have farming income.

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The tax record for most of these cases combines the income details for jointly assessed couples so the resulting data include the income of spouses and civil partners.

To the extent that some couples opt for separate assessment, the off-farm income of farm households may even be slightly underestimated.

The breakdown of gross farm household income by income source is shown in the accompanying table. It is important to point out that family farm income (as measured in the Teagasc National Farm Survey or by the CSO) is not the same as farming income of self-assessed farming cases as recorded in this table by the Revenue Commissioners.

Income from off-farm employment is the largest single income source among farm households. The dependence on off-farm employment income increased further between 2013 and 2017. Of the approximately €1 billion increase in the gross income of farming cases, €760 million was due to PAYE earnings from employment and just €190m from increased farm income.

Also of interest is that around 67pc of the farming cases in the Revenue files are recorded as being in receipt of PAYE income, so holding an employment. This could relate to the farmer or their spouse/civil partner.

This is a higher figure than the 52pc reported in the National Farm Survey, suggesting that off-farm employment income may play a greater role on more farms than has been reported hitherto.

Not only is this off-farm employment income a vital source of resilience for many farms that are not economically viable, but for all farms it can also play an important stabilising role for farm household income given the well-known volatility in farm incomes from year to year.

The European Commission has been keen to encourage the take-up of income insurance schemes managed by mutual funds with government support funded from rural development programmes under Pillar 2 of the CAP to address farm income volatility.

But there has been little interest in or take-up of these schemes across Europe and no interest to pursue this option in Ireland.

This may be partly because farmers here have relied on ad hoc disaster relief payments from the State to mitigate against severe income losses due to production risks. Or farmers may have made use of income averaging for tax purposes to smooth their income over time.

However, the Revenue statistics do not suggest that tax payments have had much of a counter-cyclical effect in stabilising farm income, although their statistics are only available for the period 2013-17 when aggregate farm income grew fairly steadily.

The Department of Finance has now made income averaging more attractive and available to more farmers with the lifting of the restriction whereby farm households with additional self-employed income could not participate.

Fluctuations

However, as tax payments by farmers under all headings of PAYE, self employed and corporation tax amounted to €380m in 2017, delaying tax payments in years of lower income is unlikely to ever make much a contribution to offsetting a drop in income of over €600m such as occurred in 2018.

Instead, the particular importance in Ireland of the role of non- farm income means that households have this hugely important cushion against fluctuations in farm income.

The availability of non-farm income gives farm households the confidence that they can weather adverse production shocks or temporary periods of low prices.

Every household will be different, of course, and each household will need to think carefully about how to manage the risk that income volatility may increase in future years.

Alan Matthews is Professor Emeritus of European Agricultural Policy at Trinity College Dublin

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