An analysis of the effectiveness of diversification as a means of overcoming the instability characteristic of farm income in Manitoba

Abstract

This study or analysis consisted of a measurement of the effectiveness of the diversification practice in overcoming instability of farm income in Manitoba. A correlation analysis was made of the yields, prices and cash incomes of the major farm products produced in the Province. Correlation of course, is a measurement of the extent to which prices, yields, or cash incomes of one product tend to vary in a pattern similar to that of the prices, yields, or cash incomes of another product. If products are closely correlated, that is they tend to be affected by the same factors, their value as substitutes for diversification purposes is limited. This is because when the price, for example, of one product is low, the other or others will command a low price as well. It was found that prices of all farm products tended to be highly correlated. Cash incomes received from these same products were also fairly highly correlated. Yields or marketings showed somewhat less correlation, and in some cases none at all. The lower correlation in yields was largely offset by the higher values for prices and cash incomes. It was therefore concluded that because correlation was relatively high, the value of substitution between products was relatively low, hence there was litt1e to be gained by "intensive" diversification to overcome instability in farm income. There were also two factors, year to year variability, and sporadic instability that were formed to modify this conclusion to some extent.