FARM HOUSEHOLD INCOMES AND REFORMING THE CAP

Abstract

Abstract Low and variable farm income has been a main rationale for heavy government intervention in agricultural markets and income transfers to farmers whether in Europe in response to disruptive agricultural imports and low world prices at the end of the 19th century or in the US in response to the Great Depression. While the future of the Common Agricultural Policy (CAP) is again discussed and new directions are examined, it is fundamental to know to what extent low and variable farm income is still a problem in contemporary European agriculture and a valid rationale for designing the new CAP. In this context, this paper first examines the income level and distribution of farm households compared to those of non-farm households for a selection of OECD countries. Second, the paper econometrically investigates whether explanations for low farm income given in the literature apply to the selected OECD countries for the 1980-2000 period. Third, the paper concludes with some policy implications. Both the descriptive and econometric analyses use the microeconomic dataset from the Luxembourg Income Study (LIS). This dataset contains socio-demographic, income and expenditure data that are collected at the household level through household-based budget surveys. These data are recorded in the LIS dataset in a harmonized way for the 30 countries that currently participate in the LIS. Average income levels as well as indicators of poverty and inequality are calculated for farm and non-farm households for the OECD countries that have at least three waves of data in the LIS dataset with a minimum of 30 identified farm households surveyed in each wave