Net Farm Income

Detailed information for 2001

The net farm income accounts are designed to provide an annual measure of income returned to the operators of agricultural businesses from the production of agricultural commodities. The numbers are used to assess the state of the agricultural industry and to form the basis of various policy options.

Data release - May 28, 2002; November 26, 2002 (revised data)

• Description
• Data sources and methodology
• Data accuracy

Description

The net farm income accounts are designed to provide an annual measure of income returned to the operators of agricultural businesses from the production of agricultural commodities. An important component of these accounts is the Farm Cash Receipts series (record number 3437) which represents the cash income received from the sale of agricultural commodities as well as direct program payments made to support or subsidize the agriculture sector.

These accounts only relate to the farm business and hence exclude any income that farm operators or their families may receive from other sources (wages and salaries, investment income, etc.). They pertain only to the production and marketing of agricultural commodities. Revenue or expenses related to the sale or purchase of farm capital (real estate, machinery and equipment) are not included. The accounts include the sale of any production from farm woodlots, but exclude any income earned from activities such as fish farming or the non-agricultural use of the farm.

Three measures of net farm income at the provincial and national levels have been estimated for the years 1971 to date: net cash income, realized net income and total net income. For 1926 to 1970, estimates of realized gross income, realized net income, total gross income, and total net income were published.

Net cash income of farm businesses is derived by subtracting operating expenses from farm cash receipts. It represents the amount of cash generated by the farm business that is available for debt repayment, investment or withdrawal by the operators.

Realized net income of farm businesses is derived by subtracting depreciation and adding income-in-kind to net cash income. It represents the financial flows, both cash and non-cash, attributable to the farm businesses, similar to an income statement. It represents the net income from transactions in a given year in that it includes the sale of commodities regardless of the year they were produced.

Total net income measures the financial flows and stock changes of farm businesses (net cash income minus depreciation plus income-in-kind and value of inventory change). It represents the return to owner's equity, unpaid labour, management and risk. Total net income values agriculture economic production during the year that the agricultural goods were produced.

Net farm income is of interest to farmers, and their organizations, governments, financial institutions, the agri-food industry and the public. The numbers are used to assess the state of the agricultural industry and to form the basis of various policy options. The primary reason for compiling net farm income is to estimate, on a provincial basis, the agriculture sector's contribution to gross domestic product. Estimates of farm income are published in the Canadian System of National Accounts as farm income contributes to the economic production and wealth of Canada.

Reference period: Calendar year

Collection period: During six weeks prior to release

Subjects

• Agriculture and food (formerly Agriculture)
• Farm financial statistics

Data sources and methodology

Target population

All Canadian agriculture operations as defined by the Census of Agriculture.

Instrument design

This methodology does not apply.

Sampling

This methodology does not apply.

Data sources

Data are extracted from administrative files and derived from other Statistics Canada surveys and/or other sources.

Farm cash receipts are, for the most part, based on monthly marketings and prices of the various commodities. Calculations of commodity cash receipts involve the use of many data sources which can vary by province and by commodity. Monthly marketings are mostly obtained from administrative records of marketing boards, government agencies and private companies. Most of the prices for the monthly marketings are collected from administrative sources such as marketing boards, regulatory agencies and market information. Some prices are also provided by a monthly farm prices survey conducted by Statistics Canada.

Direct program payments are based on data obtained from several sources. The agencies responsible for the disbursement of payments under the various programs provide the data on a monthly, quarterly and, in some cases, an annual basis. Only payments directly provided to producers are included in the series.

Preliminary farm operating expense estimates are released in May, for the previous calendar year. The estimates for most expense items are based on price and quantity change indicators collected from a wide variety of survey and administrative sources. Revisions to these data are made the following November by incorporating preliminary estimates from the Taxation Data Program. When final, they are incorporated into the farm operating expense series released the following May (i.e., almost 18 months after the end of the reference year). Revisions are also incorporated into this series after the results of the quinquennial Census of Agriculture have been reviewed.

The other expense items (interest, irrigation, livestock and poultry purchases, crop and hail insurance, and stabilization premiums) are estimated from administrative data prepared by banks, credit unions, industry associations, Farm Credit Canada, federal and provincial governments, and from Agriculture and Agri-Food Canada.

Income-in-kind estimates are calculated by multiplying the quantity consumed of a commodity by its price. Quantities consumed are generally based on the number of farm operations producing the item at the time of the Census of Agriculture, their average farm family size and the average annual Canadian consumption of the commodity. These quantities are valued at weighted average market prices received for the product during the year from the farm cash receipts series.

The value of inventory change series is an estimate of the value of the change in producer-held inventories of agricultural products during a calendar year. The physical change in inventories is valued at weighted average annual market prices in the case of crops and at simple average annual prices for livestock commodities. This simple average is based on the value per animal at January 1, July 1 and December 31 of each year.

In the case of crops, supply and disposition balance sheets are used to establish the beginning and ending inventories on a calendar year basis. Inventories at the end of each crop year and production levels for each crop are based on producer surveys. Monthly disposition items, including marketings, home consumption, feed, waste and dockage, and seed use, are obtained from various administrative sources.

Physical inventory levels at calendar year-end are established for each crop by adding estimates of crop year beginning inventories to estimates of production and then deducting estimates of monthly disposition.

Physical inventory levels for livestock items are established from the quinquennial Census of Agriculture. Between censuses, semi-annual producer surveys are used to derive inventory levels.

Error detection

Macro editing is used. Editing is done at the provincial level. As a result of the residual method used to detect net income, a minor change in either farm cash receipts or farm operating expenses can have a significant impact on the net income level and yearly change.

Imputation

This methodology does not apply.

Estimation

A full description on estimation is provided in the attached document.

• Additional documentation

Quality evaluation

The quality of net farm income estimates and its components (farm cash receipts, farm operating expenses, income-in-kind, depreciation and value of inventory change) is evaluated by checking the consistency of these data with other sources or previous occasions. An interpretative analysis is also conducted. Much of the data which goes into the calculation of net farm income comes from administrative programs. Much of it is already audited by the source organizations. Both the input data and estimates which are prepared and/or derived are closely scrutinized by our provincial counterparts and personnel in Agriculture and Agri-Food Canada through the "work in progress agreements". Anomalies that are found by these experts are thoroughly investigated prior to release.

Disclosure control

Statistics Canada is prohibited by law from releasing any information it collects which could identify any person, business, or organization, unless consent has been given by the respondent or as permitted by the Statistics Act. Various confidentiality rules are applied to all data that are released or published to prevent the publication or disclosure of any information deemed confidential. If necessary, data are suppressed to prevent direct or residual disclosure of identifiable data.

Revisions and seasonal adjustment

Data are published twice each year, at the end of May and at the end of November. In May, data for the previous two calendar years are subject to revision. In November, data for the previous three years may be revised. Every five years a historical revision is done based on the results of the Census of Agriculture. The results of the latest intercensal revision, based on the 2001 Census of Agriculture apply to the period 1991 to 2002.

Data accuracy

A data accuracy measure is a numeric value, or symbol corresponding to numeric values, which quantifies or summarizes the likely magnitude and important sources of differences between the published data and the quantities that the survey was designed to estimate.

No direct measures of the margin of error in the estimates can be calculated. The quality of the estimates can be inferred from analysis of revisions and from a subjective assessment of the data sources and methodology used in the preparation of the estimates.

The net farm income accounts are derived from a compilation of data from various surveys and administrative sources. The quality of the survey and administrative data used in the farm income series are considered to be good.

It is important to note that these data are subject to error. Administrative data may contain non-sampling error such as keying mistakes, while survey data may carry other non-sampling and sampling errors. As a result of the residual method used to derive net income, a minor change in either farm cash receipts or farm operating expenses can have a significant impact on the net income level and yearly change.