Impacts of farmland tenure arrangements, debt structure and rate of return on productive assets on crop farm income in Manitoba : a simulation study

Abstract

Concerns about low and variable income situation continue to be pervasive in the agriculture sector despite attempts by both Federal and Provincial Government to improve them. This study re-examines farm income in an attempt to provide new insights on those two concerns. A sixty-subroutine simulation model was constructed as a representative crop farm. Using this as the basic framework a factorial experimental design was implemented and the various combinations simulated. Each simulation was run for twenty-years under a deterministic mode; using farmland use control, rate of return on productive assets and debt structure as controllable variables and net income, net cash flow and net worth as performance measures. The major results of the study are that farmland control arrangements positively influenced all performance measures; rate of return displayed positive effects on net cash flow and net worth and net income, and debt structure had increasing impacts on all performance criteria. Net income showed relatively lower values and greater variability than net cash flow and net worth. This suggests that the lowness and variability of income are inherent in the definition of net income and that net cash flow and net worth are more appropriate criteria. The major implications of the results are related to land policy, resource adjustment and productivity, farm credit and financial management and farm income stability and welfare. Land use and ownership policies may incorporate a quantitative basis for restricting ownership. Tenure arrangement can also influence land use and conservation policies by serving as the regulatory mechanism. Incorporation of debt structure as a precondition for borrowing will permit available credit to be loaned to viable farm and to ensure that credit needs of the sector, especially short term and medium term needs, are met quickly by lending institutions. The results have implication for stabilization policies. They suggest that the perceived problem may not be one of net income but one of cash flow. Therefore, stabilization programmes should be based on cash flow requirements rather than income. This will dissipate some of the inequalities in ownership of income earning resources with consequences for equitability in distribution, levels of income, maintenance of the family farm and rural outmigration.