Cathal O’Donoghue - Historical Microsimulation: Farm Incomes and the Income Distribution 1955-2017

  • Presenting author: Cathal O’Donoghue (University of Galway)

  • Authors: Cathal O’Donoghue

  • Session: C01A - Dynamic / Long term [2] - Wednesday 9:00-10:30 - Ceremonial Hall

The agricultural sector has seen enormous change since the 1950’s, moving from a sector with a substantial subsistence basis of small mixed farms, largely focused on domestic food security, with low levels of mechanisation in an era of post-war trade restrictions, the sector has transitioned to a an important exporting sector, with more medium sized farms, greater specialisation and an increasing importance of state supports for incomes. This transition has seen a large scale reduction in small farms and labour as the sector has restructured and greater mechanisation has been employed. In this paper we compile a series of datasets, both micro-level and tabular based to consider trends in the farm income distribution over time, to consider the impact of macro changes that have affected the sector and to decompose the drivers of these distributional trends. We use a variety of microsimulation methods to do this decomposition. Specifically we estimate a series of income generation models and using alignment, calibrate historical distributional control totals to generate these micro distributions. Farm surveys on which this analysis is based, whose focus is on understanding farm outputs and inputs, typically exclude the smallest farms, focusing on the majority of farms that produce the majority of output. Combining census data which give an indication of the excluded arms, plus a model of scale economies at farm level, we impute an estimate of the truncation that has occurred. Many of these “truncated” farms are of particular interest as they disproportionally represented in the group of farms that have exited agriculture. They also disproportionally comprise farms that fall into the subsistence category. We track trends in this dual agricultural economy with the gradual reduction in the segment of the sector akin to poor subsistence farmers in the developing world today with incomes at less than $2 per day in current prices. We also consider the distributional impact of a number of macro-shocks such as the cattle crisis of 1974, the input price and interest rate shock of the early 1980’s and the financial crisis of 2009.