The Impact of Non-Farm Income on the Incidence ofPoverty among Farmers in Kedah, Malaysia

The objective of this paper is to analyse the impact of non farm income on the incidence of poverty in Kedah.The data used in this study is primary data which is gathered through a survey carried out among agricultural households in Kedah Darul Aman, Malaysia.A total of 384 agricultural households participated in this survey.A face to face interview was carried out with selected respondents between the month of April and December 2008.To study the effect of non-farm income to the level of poverty, this study used a FGT index as proposed by Foster-Greer-Thorbecke (1984). This study finds that about 32 percent of the household have non farm activities and non farm income reduce the level, depth and severity of poverty in Kedah.Non farm income has a greater impact on reducing the severity as opposed to the level and depth poverty in Kedah.The study showed non-farm income reduces the poverty rate of 42.94%, while poverty declined by 51.47% and the squared poverty gap- which measures the severity of poverty- fall by 55.72 percent when non farm income are included in household income.On the other hand the severity of poverty fall by 23.35 percent when transfer payment are included in such income.This is true because agricultural households receive a very large share of their total household income from non farm income compared to transfer payment.