Sustainable agriculture

Theme: Farm Financial Resources



Financial resources are a key driving force behind farmers' actions, but are not directly related to environmental performance. The relationship between farm financial resources and environmental outcomes is complex, as farms can remain profitable at the expense of environmental degradation, at least over the medium term. Profitable farms, however, can better afford to take the environment into account in their investment and farm management decisions.

The availability of financial resources influences farming practices; the ability to acquire new technologies; as well as the type, level and intensity of input use and of production. They also affect the degree of adoption of environmentally benign production methods, including farmers' attitudes towards environmental risks; rates of structural adjustment, including farm amalgamation; and the exit and entry of farmers into the sector.

The two main sources of farm financial resources in OECD countries include returns from the market and government support (farm household income can also include non-farm sources of income). The type and level of support provided to farmers varies widely across the OECD. Since the late 1980s many countries have introduced agri-environmental measures, and land diversion schemes with environmental objectives, mainly aimed at: changing farming practices (e.g. raising environmental awareness through farm advisory services or voluntary farm groups); developing agri-environmental research (e.g. on soil carbon changes); providing payments to farmers for reducing environmental damage (e.g. animal waste treatment facilities) and enhancing environmental services (e.g. laying hedgerows). In addition, farmers also have to comply with environmental standards and regulations, especially with regard to the use of pesticides and inorganic fertilisers.

Indicators and recent trends

OECD indicators on farm financial resources reflect the financial health of the farm and cover two areas: first, net farm income from agricultural activities, and second, public and private agri-environmental expenditure, including agri-environmental research expenditure.

Net farm income is calculated as the difference between gross output and all expenses, including depreciation at the farm level. While nominal net farm incomes have risen for most OECD countries over the past 10 years, the performance in real terms has been variable and over recent years net farm incomes have sharply declined for some countries. Agricultural households also obtain a substantial share of their income from non-agricultural activities in many countries, and in some countries the total average income of agricultural households exceeds that of non-agricultural ones.

Public and private agri-environmental expenditure is aimed at both mitigating the negative impacts of agriculture on the environment and also enhancing the benefits. For a large number of OECD countries there has been a very rapid increase in public agri-environmental expenditure over the 1990s, associated with the introduction of many new environmental measures related to agriculture. The use of this expenditure varies widely across countries, reflecting differences in agri-environmental concerns and priorities.

A significant share of public agricultural research expenditure in many countries is spent on addressing agri-environmental concerns, and in some cases this share has been increasing since the mid-1980s. While in a few countries private agri-environmental expenditure is important, there is little systematic collection of this expenditure data.