Is There Gold in Green? A Modified Perspective of Income Developments in Active Agriculture

Abstract

This thesis seeks to answer how active agricultural incomes in Norway have evolved from 1970 to 2021, by modifying the aggregated account. The calculation of the farmer’s income has been a contentious debate for a longer period, and our aim is for this thesis to calculate a more realistic development model for agricultural incomes. By utilizing agricultural statistics from various sources, we present the modified aggregated account, as outlined by the Grytten Committee in 2022, spanning from 1970 to 2021. Our findings indicate that active farmers generally have a lower pre-tax income when applying this framework compared to the original aggregated account. Our objective is not to provide a specific figure for the earnings of Norwegian farmers but rather to examine how income has evolved over time. We apply the Hodrick-Prescott filter to several time series to compare developments in the cyclical components over time. For agricultural income and economic cycles, we find no clear correlations. This is partly due to agricultural incomes being subject to extensive support schemes and market regulations. Furthermore, we identify a positive relationship between agricultural incomes and agricultural production. This aligns with our assumptions, as a portion of the income is directly tied to production. We also demonstrate that fluctuations between incomes and subsidies often exhibit close covariance, although not universally. The inconsistency stems from excessive subsidies leading to overproduction and subsequently reduced income, and due to subsidies serving multiple purposes. Our findings reveal a growing divergence between NIBIO’s and our modified account over time, but also demonstrates the independence of income from broader economic fluctuations. Thanks to strong support systems and favorable market regulations for agriculture, incomes remain relatively insulated from economic cycles and, to some extent, also production fluctuations. Nevertheless, production will still have a certain correlation with incomes, as a portion of the earnings is directly linked to the sale of goods.