Understanding the structure of Canadian farm incomes in the design of safety net programs

Abstract

The effectiveness of safety net programs in meeting their purpose depends implicitly on the nature of farm profitability distributions. This study provides an empirical characterization of farm operating profit distributions and assesses the implications for Canadian safety net programs. Pooled time series data from the Statistics Canada Tax Data Program and the Farm Financial Survey is queried across a range of farm types and provinces, with quartile distributions of Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) within four farm-size categories analyzed. The results show that regardless of farm type or province, there is greater variation in operating profit within a sales category than there is across the sales categories, and that the range in operating profit increases with size, revealing some very profitable small farms and unprofitable large farms. Thus, the discussion of the social value of farm stabilization programs ought not to be focused on farm size alone. © 2007 Canadian Agricultural Economics Society.