Off-Farm Work and Economic Performance: Comparing Crop and Livestock Farms

This paper examines how off-farm work affects the economic performance of crop and (selected) livestock farms. It estimates returns to scale and technical efficiency following an input distance function approach and compares the relative performance of dairy and corn farm operator households with and without off-farm work. We use farm-level data from the USDA's ARMS survey for 1996-2005. The impact of off-farm work on scale and technical efficiency is examined from two viewpoints: first, the effect of off-farm work on the scale and technical efficiency of the farm business in the production of traditional commodities (farm-level perspective); second, the impact of off-farm work on scale and technical efficiency at the household level, considering both on-farm and off-farm activities. We find that off-farm income boosts scale efficiency on corn farms but decreases scale and dairy farms. The impact of off farm income on technical efficiency is small when using the household approach. However, dairy farmers that rely on off-farm income have lower technical efficiency than dairy farmers that do not rely on off farm income in both the farm and household models, while the reverse is true for corn farms. Finally, we find that dairy farms relying on off farm income have significantly lower returns on assets, while again the opposite is true for corn farms.