Economic Analysis of the Interrelationships Among Off-farm Work, Participation in the Conservation Reserve Program, and Farm Productivity of Farm Households in the United States

Abstract

To better understand the interaction between the farm business and the farm household, this study identifies those factors that explain participation in two major sources of non-production income of farm households: off-farm employment by the operator and the spouse and the Conservation Reserve Program (CRP). In addition, we investigate the effects of these decisions on farm efficiency and productivity. Since there is always trade-offs between computational demands and model generalization, it is difficult to develop an empirical model that accommodates all of the interrelationships among these decisions. In this study, three specific econometric models are estimated to test if these decisions are made jointly, sequentially or independently by the farm household. Although the focus of each model differs, our empirical findings are quite robust across models. Our results show that CRP participation depends generally on some characteristics of the farm, the farm operator, land quality, and the circumstances in the local economy. It appears that CRP acres response positively to CRP price but it decreases with the increase of low land quality. Environmental factors also play a role of CRP participation. The farm household located in areas where the EBI scores for land currently enrolled are high is more likely to participate in CRP. Our empirical findings also support the reduction in the likelihood of CRP participation due to the increase in decoupled payments. Similar evidence is found for the decision of the farm household to engage in off-farm work. Older farmers or those who have fewer years in farming are more likely to work off the farm. In addition, the operator?s education has a positive effect on the probability of participation in off-farm work. Another unique finding of this study is the qualification of the impact on farm productivity of CRP participation and the off-farm work decision of the farm operator. It appears that participation in CRP lowers the technical efficiency and productivity, but participation in off-farm work increases technical efficiency and productivity. These results may imply that efficiency is more adversely affected when land is withdrawn from production without also withdrawn labor. However, the reverse is not true.