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Income and family farms

8 important questions on Income and family farms

Suppose a farm. Is the household income from this farm equal to the value added created by agricultural activities on that farm?

No, value added equals total factor rewards. Household income from farming equals the reward for factors owned by the farm household and employed on the farm.

luctuations in income in dairy farming are smaller than in pig farming and horticulture in the EU. What is the explanation for this?

In the EU there is price support and price stabilisation for dairy products (although it is decreasing) but not, or to a much smaller extent, for pig meat and horticultural products. Stable prices lead to stable incomes.

In The Netherlands there is a saying ‘farmers live poor but die rich’. Explain this saying.

Farm incomes are relatively low (income disparity) while at the same time the value of the farm is high (mainly because of high land prices and high prices for quota rights). The value of land and quotas (shadow prices) is high because marginal costs of production are low. For example, with an extra hectare of land more wheat can be produced without much extra costs (just seed, plant protection products and fertiliser. Machinery and labour are already available).

Mention the advantages and disadvantages of family farms compared to non-family farms (e.g. large commercial firms).

Advantages family farms: lower transaction costs when labour, management and capital are employed, advantages in the formation of human capital and the acceptance of low factor rewards.

Advantages non-family farms: economies of scale and higher (lower) prices for outputs (inputs).

How agricultural specific are these advantages and disadvantages? Are they also relevant in other industries?

These advantages and disadvantages also play a role in other industries. For example, small family grocery shops disappeared in The Netherlands in the 1970s because economies of scale and price advantages of supermarkets became too large. Family firms still can be found in many services industries as restaurants and pubs.

Organic farming. Organic farms are mixed farms (both arable farming and livestock production) that do not use chemical crop protection products and artificial fertilisers. In general organic farms are land and labour intensive.

It depends. In countries like The Netherlands where labour and land are scarce (have a high price) the costs of organic farming are relatively high. So, it seems doubtful that large scale commercial farms will be dominant in this sector. In other countries this could be different.

Pig fattening. Pig fattening can be computerised and automised completely

It is to be expected that the advantages of large commercial farms (economies of scale and price advantages) will outweigh the disadvantages in the future (high labour costs).

Ornamental plant growing. Ornamental plant production can be, and already is too a large extent, computerised and automised and labour division is possible.

In this sector we already see in The Netherlands that family farms are disappearing. The advantages of large commercial farms (economies of scale) outweigh the disadvantages also because costs of training people is low (labour specialisation).

The question on the page originate from the summary of the following study material:

Economics of Agribusiness | Gardebroek, et al

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Income and family farms

8 important questions on Income and family farms

Suppose a farm. Is the household income from this farm equal to the value added created by agricultural activities on that farm?

luctuations in income in dairy farming are smaller than in pig farming and horticulture in the EU. What is the explanation for this?

In The Netherlands there is a saying ‘farmers live poor but die rich’. Explain this saying.

Mention the advantages and disadvantages of family farms compared to non-family farms (e.g. large commercial firms).

How agricultural specific are these advantages and disadvantages? Are they also relevant in other industries?

Organic farming. Organic farms are mixed farms (both arable farming and livestock production) that do not use chemical crop protection products and artificial fertilisers. In general organic farms are land and labour intensive.

Pig fattening. Pig fattening can be computerised and automised completely

Ornamental plant growing. Ornamental plant production can be, and already is too a large extent, computerised and automised and labour division is possible.

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