The Wye Group Handbook Rural Households’ Live hood and li Well-Being Statistics on Rural Development and Agriculture Household Income UNITED NATIONS New York and Geneva, 2007 NOTE The designations employed in this publication, which are in conformity with the practice of the publishing organizations, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the publishing organizations concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers or boundaries. Copyright © 2007 United Nations Economic Commission for Europe (UNECE) and Food and Agriculture Organization of the United Nations (FAO) Organisation for Economic Co-operation and Development (OECD) The World Bank Statistical Office of the European Communities (Eurostat) First published 2007 Publications of the United Nations Economic Commission for Europe, Food and Agriculture Organization of the United Nations, Organisation for Economic Co-operation and Development, The World Bank and the Statistical Office of the European Communities (the publishing organisations) enjoy copyright Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. UNITED NATIONS PUBLICATION Sales No. E.07.II.E.14 ISBN 978-92-1-116967-6 HANDBOOK ON RURAL HOUSEHOLDS’ LIVELIHOOD AND WELL-BEING CONTENTS PREFACE.........................................................................................................................................xi ACKNOWLEDGEMENTS.............................................................................................................xv EXECUTIVE SUMMARY...............................................................................................................1 I INTRODUCTION AND BACKGROUND........................................................................................5 I.1 Background to the Handbook ................................................................................................5 I.1.1 Why is the Handbook being produced?.....................................................................5 I.1.2 Who is the Handbook intended for?..........................................................................8 I.1.3 The role of statistics..................................................................................................8 I.2 What is rural development and why is it a policy area?.......................................................10 I.3 Rural development – policy objectives................................................................................13 I.4 Why a particular focus on agriculture household income and wealth?................................14 I.5 Agriculture households, their incomes and policy objectives..............................................16 PART I RURAL DEVELOPMENT STATISTICS II NATIONAL AND INTERNATIONAL RURAL DEVELOPMENT POLICIES ...........................21 II.1 A few examples of national rural development policies......................................................21 II.2 Rural development - a sectoral based (agriculture) approach .............................................23 II.2.1 The agriculture perspective.....................................................................................23 II.2.2 Trends in agriculture in the last 50 years – employment and productivity.............24 II.2.3 The current situation for agriculture........................................................................25 II.2.4 Other characteristics of agriculture.........................................................................26 II.2.5 Perspectives on agricultural policy reform and the rural economy.........................26 II.2.6 The farm policy dilemma........................................................................................27 II.3 Rural development - a territorial based approach.................................................................28 II.3.1 Employment – the driving force of rural development...........................................28 II.3.2 Trends for rural regions...........................................................................................28 II.3.3 Entrepreneurship and job creation in rural areas.....................................................29 II.3.4 Are manufacturing and services now the pillars of rural development?.................30 II.3.5 Merging industry sectors.........................................................................................30 II.3.6 Industrial structures and characteristics of rural and urban economies...................31 II.3.7 Sectoral mix and territorial dynamics......................................................................31 II.3.8 Education and employment in rural regions............................................................31 II.3.9 The role of tourism..................................................................................................32 II.3.10 The importance of communications........................................................................33 II.3.11 The role of information technology for rural development.....................................34 II.3.12 Rural services standards..........................................................................................35 II.3.13 Objectives for rural policies....................................................................................35 II.3.14 New issues in rural policymaking...........................................................................35 II.4 Conclusions..........................................................................................................................36 iii CONTENTS III CONCEPTUAL FRAMEWORK......................................................................................................43 III.1 Definitions of rural...............................................................................................................43 III.1.1 Introduction.............................................................................................................43 III.1.2 OECD......................................................................................................................43 III.1.3 European Union.......................................................................................................47 III.1.4 FAO.........................................................................................................................48 III.2 Typologies ...........................................................................................................................49 III.2.1 OECD......................................................................................................................49 III.2.2 European Union.......................................................................................................54 III.3 Requirements of indicators and their assessment.................................................................55 III.3.1 Introduction.............................................................................................................55 III.3.2 OECD......................................................................................................................56 III.3.3 European Union.......................................................................................................57 III.3.4 FAO.........................................................................................................................58 III.4 Themes and set of indicators................................................................................................58 III.4.1 OECD......................................................................................................................58 III.4.2 European Union.......................................................................................................59 III.4.3 The World Bank......................................................................................................60 III.4.4 FAO.........................................................................................................................62 III.5 Indicators – use and misuse..................................................................................................63 IV IV INVENTORY OF NATIONAL APPROACHES TO RURAL DEVELOPMENT STATISTICS.........................................................................................69 IV.1 Introduction..........................................................................................................................69 IV.2 Inventory of national rural development statistics...............................................................70 IV.3 The definition of rural..........................................................................................................71 IV.4 Current availability of rural development and related statistics...........................................72 IV.5 Rural development policy....................................................................................................73 IV.6 Next steps.............................................................................................................................76 IV.7 Case study: Canada..............................................................................................................76 IV.7.1 Introduction.............................................................................................................76 IV.7.2 Definitions and typologies.......................................................................................76 IV.7.3 Results.....................................................................................................................78 IV.7.3.1 Population issues.....................................................................................78 IV.7.3.2 Employment and labour force issues......................................................80 IV.7.3.3 Income and expenditures........................................................................84 IV.7.3.4 Social issues............................................................................................86 IV.7.3.5 Business structures and economic growth issues....................................88 IV.7.3.6 Educational issues...................................................................................90 IV.7.3.7 Territorial issues......................................................................................90 IV.7.4 Concluding remarks................................................................................................90 V INVENTORY OF RURAL INDICATORS BY INTERNATIONAL ORGANIZATIONS...........101 V.1 Introduction........................................................................................................................101 V.2 OECD ...............................................................................................................................101 V.2.1 Introduction...........................................................................................................101 V.2.2 Population and migration......................................................................................102 V.2.3 Economic structure and performance....................................................................103 V.2.4 Social well-being and equity.................................................................................105 V.2.5 Environment and sustainability.............................................................................106 iv HANDBOOK ON RURAL HOUSEHOLDS’ LIVELIHOOD AND WELL-BEING V.3 European Union..................................................................................................................108 V.3.1 Indicators suggested in the PAIS report................................................................108 V.3.2 Indicators suggested in the Hay report..................................................................112 V.3.3 Common indicators for monitoring rural development programming – midterm review...................................................................................................113 V.4 The World Bank.................................................................................................................113 V.5 FAO....................................................................................................................................114 VI DATA SOURCES...........................................................................................................................117 VI.1 Introduction........................................................................................................................117 VI.2 Population and housing censuses.......................................................................................118 VI.3 Agricultural censuses and surveys......................................................................................127 VI.4 Household budget surveys..................................................................................................129 VI.4.1 Living Standards Measurement Study surveys – an introduction.........................131 VI.4.2 International Household Survey Network.............................................................132 VI.4.3 Master sampling frames and master samples........................................................133 VI.4.4 Suggested integrated programme of household surveys.......................................134 VI.5 Labour force surveys..........................................................................................................136 VI.6 Other survey sources..........................................................................................................137 VI.7 Administrative registers.....................................................................................................137 VI.7.1 Vital statistics records...........................................................................................138 VI.8 Non-official statistics, e.g. from trade associations............................................................138 VI.9 GIS and geo-coded statistics..............................................................................................138 VI.10 Conclusions and recommendations....................................................................................139 VII APPROACHES IN SELECTING A CORE SET OF INDICATORS............................................143 VII.1 Introduction........................................................................................................................143 VII.2 Two approaches in selecting indicators..............................................................................143 VII.3 Rural indicators classified by themes.................................................................................145 VII.4 Measures of rurality............................................................................................................146 VII.4.1 Defining the characteristics of an indicator that deals with rurality......................146 VII.4.2 Statistical requirements of a rural indicator...........................................................147 VII.4.3 Three dimensions of any indicator........................................................................147 VII.4.4 A graduated sequence of rural indicators..............................................................148 VII.5 Suggested sets of rural indicators.......................................................................................149 PART II AGRICULTURE HOUSEHOLD INCOME AND WEALTH VIII CONCEPTUAL FRAMEWORK – INTRODUCTION..................................................................157 VIII.1 Matching indicators to policy needs in countries at different levels of economic development........................................................................................157 VIII.1.1 Types of income and wealth statistics needed...................................................160 VIII.2 Households as economic, social and cultural units and as agents for environmental change and conservation – controllers of resources and users of services......................................................................................161 VIII.3 Concepts of income and wealth and related indicators......................................................162 VIII.4 Households and other forms of institutional units within accounting and statistical systems........................................................................................................164 v CONTENTS VIII.4.1 Accounting frameworks.....................................................................................164 VIII.4.2 Accounts for activities and for institutional units..............................................166 VIII.4.3 Activity accounts – agriculture as an activity....................................................171 VIII.4.4 Accounts for institutional units – accounts for farm household-firms.................................................................................................174 VIII.5 Where we are in the provision of income indicators taken from institution-based accounts for household-firms.........................................................175 IX THE AGRICULTURAL HOUSEHOLD – CONCEPTS AND DEFINITIONS............................181 IX.1 Definition of the household appropriate to accounting and statistics.................................181 IX.2 Households of different sizes and compositions................................................................185 IX.3 The rural and urban household enterprise..........................................................................186 IX.4 Definition of the agricultural household-firm (enterprise) and those belonging to other socio-professional groups.....................................................................188 IX.4.1 Selecting from the “broad” definition of an agricultural household..............................................................................................................190 IX.4.2 Some practicalities of classification......................................................................190 IX.4.3 Choice of other socio-professional groups with which to compare agricultural households.......................................................................193 IX.5 Households containing hired labour working in agriculture..............................................194 IX.6 Relevance for countries with large-scale agricultural enterprises with separate legal status....................................................................................................195 IX.7 Households in less developed countries.............................................................................196 IX.8 Typologies of farm households..........................................................................................197 IX.8.1 European Union: Eurostat’s IAHS statistics typology..........................................197 IX.8.2 Economic Research Service farm typology for the United States.........................201 IX.8.3 Italy: the ISMEA survey........................................................................................203 X DEFINITIONS OF INCOME.........................................................................................................207 X.1 Income as factor rewards and as source of consumption spending....................................207 X.2 Relationship between household resources, income and expenditure................................207 X.2.1 Income from self-employment..............................................................................209 X.2.2 Income in kind.......................................................................................................211 X.2.3 Living costs...........................................................................................................213 X.3 Individual and household incomes.....................................................................................213 X.4 Shadow wage and the non-observed economy...................................................................216 X.5 Various income concepts and relationships between them................................................217 X.5.1 Extended and full incomes....................................................................................218 X.5.2 The importance of time to income measurement..................................................218 X.5.3 Lifetime income and permanent income hypothesis.............................................220 X.6 Subsidies, preferential tax treatments and income measures.............................................221 X.7 Definitions in use................................................................................................................222 XI INCOME LEVELS, DISTRIBUTION AND POVERTY..............................................................235 XI.1 The assessment of poverty.................................................................................................235 XI.1.1 Social exclusion.....................................................................................................235 XI.2 Ways of measuring the incidence of poverty among households.......................................236 XI.2.1 Low-income rate (Cumulative proportions below percentiles of the median).....................................................................................238 XI.2.2 The low-income gap..............................................................................................238 vi HANDBOOK ON RURAL HOUSEHOLDS’ LIVELIHOOD AND WELL-BEING XI.2.3 Relative income level by percentile......................................................................239 XI.2.4 Cumulative decile shares – Lorenz curve..............................................................239 XI.2.5 Gini coefficient......................................................................................................240 XI.2.6 Sen index...............................................................................................................240 XI.2.7 Warning in the interpretation of coefficients.........................................................241 XI.3 Poverty lines and inequality measures in practice in agriculture.......................................242 XII MEASUREMENT AND COMPOSITION OF FARM HOUSEHOLD WEALTH.......................247 XII.1 Introduction........................................................................................................................247 XII.1.1 Wealth of farm households in the United States...................................................249 XII.2 Selected uses of farm and household wealth measures......................................................249 XII.3 Differences in wealth measurement for farms and farm operator households............................................................................................................251 XII.4 Connection between farms and households in wealth measurement..................................251 XII.5 Data to support estimates of household net worth..............................................................252 XII.6 Extending analyses of household economic status and well-being....................................256 XII.7 Measurement and composition of household wealth in developing countries......................................................................................................259 XII.7.1 Household enterprises module..............................................................................259 XII.7.2 Agriculture module................................................................................................260 XII.7.3 Savings module.....................................................................................................261 XII.7.4 Credit modules......................................................................................................262 XII.8 Conclusions........................................................................................................................264 XIII INVENTORY OF METHODOLOGIES USED: AGRICULTURE INCOME AND WEALTH STATISTICS.......................................................................................271 XIII.1 Data sources for agricultural income statistics – generic sources......................................271 XIII.1.1 Types of data sources.........................................................................................272 XIII.2 Survey of definitions and measurement issues in selected countries.................................276 XIII.2.1 Predominately developed countries (UNECE and OECD countries).........................................................................276 XIII.2.1.1 Background.................................................................................276 XIII.2.1.2 Definition of household...............................................................277 XIII.2.1.3 Definition of agricultural household...........................................279 XIII.2.1.4 Definition of rural household......................................................282 XIII.2.1.5 Treatment of special institutions.................................................282 XIII.2.1.6 Classification into socio-economic groups when using the “narrow” definition of an agricultural household.................................................................282 XIII.2.1.7 Short-term stability mechanism..................................................283 XIII.2.1.8 Equivalence scales.......................................................................283 XIII.2.1.9 Own consumption.......................................................................285 XIII.2.1.10 Imputed rent................................................................................286 XIII.2.1.11 Calculation of net disposable income of agriculture households – items covered..................................286 XIII.2.1.12 Conclusions.................................................................................287 XIII.2.2 Selected developing countries............................................................................287 XIII.2.2.1 Background.................................................................................287 XIII.2.2.2 Definition of household...............................................................289 XIII.2.2.3 Definition of agricultural household...........................................293 vii CONTENTS XIII.2.2.4 Classification into socio-economic groups..................................294 XIII.2.2.5 Short-term stability mechanism..................................................296 XIII.2.2.6 Equivalence Scale.......................................................................296 XIII.2.2.7 Own consumption.......................................................................297 XIII.2.2.8 Imputed rent................................................................................300 XIII.2.2.9 Calculation of net disposable income of agriculture households............................................................301 XIV INCOME AND WEALTH STATISTICS FOR SELECTED COUNTRIES..................................319 XIV.1 United States.......................................................................................................................319 XIV.1.1 The Agricultural Resources Management Survey (ARMS)..............................319 XIV.1.1.1 Origin of the ARMS as a principal USDA survey......................320 XIV.1.1.2 ARMS design characteristics......................................................323 XIV.1.1.3 Content of current ARMS survey questionnaires........................323 XIV.1.1.4 ARMS: An evolving survey........................................................327 XIV.1.2 Agriculture household income and wealth statistics..........................................332 XIV.1.2.1 Introduction.................................................................................332 XIV.1.2.2 Income and well-being of farm households................................332 XIV.1.2.3 Income and expenditures by household size...............................332 XIV.1.2.4 Farm households working more off the farm and accumulating wealth....................................................................332 XIV.1.2.5 Largest farms have most income, wealth and debt......................333 XIV.1.2.6 Location influences household income and wealth.....................333 XIV.1.2.7 Comparing farm and non-farm income and wealth.....................334 XIV.1.2.8 Farm households save more, spend less than non-farm households...................................................................334 XIV.1.2.9 Main findings and policy implications........................................335 XIV.2 Italy.....................................................................................................................................343 XIV.2.1 The ISMEA survey............................................................................................343 XIV.2.1.1 Overview.....................................................................................343 XIV.2.1.2 The survey...................................................................................343 XIV.2.1.3 The sample design.......................................................................343 XIV.2.1.4 The questionnaire........................................................................344 XIV.2.1.5 Production and factor use information are structured by activity....................................................................................344 XIV.2.1.6 From the farm operation to the farm household-firm unit perspective...........................................................................344 XIV.2.1.7 An agricultural standard of living survey....................................345 XIV.2.1.8 From an agricultural to a rural living standard survey................345 XIV.2.2 The REA survey and the RICA-REA project....................................................347 XIV.2.2.1 Overview.....................................................................................347 XIV.2.2.2 Survey characteristics..................................................................348 XIV.2.2.3 The questionnaire........................................................................348 XIV.2.2.4 From micro to macro estimates...................................................349 XIV.2.2.5 Conclusions and final recommendations.....................................351 XIV.2.3 Survey of Household Income and Wealth.........................................................351 XIV.2.3.1 The data.......................................................................................351 XIV.2.3.2 Economic conditions of rural and agricultural households.........352 XIV.2.3.3 Conclusion...................................................................................354 XIV.3 Denmark – register based agricultural income statistics....................................................357 viii HANDBOOK ON RURAL HOUSEHOLDS’ LIVELIHOOD AND WELL-BEING XIV.3.1 Introduction........................................................................................................357 XIV.3.2 Combining of registers and income information................................................357 XIV.3.3 Comparison between farmers and other professional groups............................358 XIV.3.4 Comparison between different types of farms...................................................359 XIV.3.5 Development of wealth in agricultural households............................................362 XIV.4 Sweden – another example of register-based statistics......................................................363 XIV.4.1 Introduction........................................................................................................363 XIV.4.2 Agriculture household income 1999-2002.........................................................363 XIV.4.3 Agriculture household income according to IAHS – comparison between socio-economic groups......................................................................................363 XIV.5 Canada................................................................................................................................367 XIV.5.1 Gross and net revenues per farm – medium-sized farms have the highest operating margin....................................................................................367 XIV.5.2 Farm operators’ off-farm income exceeds net cash farm operating revenue.....367 XIV.5.3 Total farm family income increases steadily as a result of increasing off-farm income................................................................................................................368 XIV.5.4 Steady increase in wealth accumulation............................................................369 XIV.5.5 Notes to the data and the data sources...............................................................370 XIV.6 European Union..................................................................................................................378 XIV.6.1 Introduction........................................................................................................378 XIV.6.2 An overview of results.......................................................................................380 XIV.6.3 Availability of results.........................................................................................380 XIV.6.4 Main findings.....................................................................................................381 XIV.6.5 Numbers of agricultural households..................................................................381 XIV.6.6 Composition of income of agricultural households, and deductions.................382 XIV.6.7 Stability of income of agricultural households..................................................383 XIV.6.8 Comparisons of the income of agricultural households with the all-households average...............................................................................................................383 XIV.6.9 Comparison with other socio-economic groups.................................................384 XIV.6.10 Income situation of “marginal” households.......................................................385 XIV.6.11 Farm households “broad” definition compared to all households.....................386 XIV.7 Australia.............................................................................................................................391 XV FINDINGS AND GOOD PRACTICES IN STATISTICS ON RURAL DEVELOPMENT AND AGRICULTURAL HOUSEHOLD INCOME........................................399 XV.1 Introduction........................................................................................................................399 XV.2 Statistics for rural development..........................................................................................400 XV.2.1 Key issues in rural statistics...............................................................................401 XV.2.2 Rural measurement problems.............................................................................403 XV.3 Statistics on the incomes and wealth of agricultural households.......................................405 XV.3.1 Methodological issues in measuring agricultural household income and wealth............................................................................407 XV.3.2 Provision of data – the data system for agricultural household income measurement........................................................................411 ix