THE GROWING IMPORTANCE OF DIVERSIFICATION ACTIVITIES FOR FRENCH FARM HOUSEHOLDS

Diversification activities, on-farm or off-farm, can allow farmers not to rely exclusively on farming for the household's income. In many rural areas, on-farm tourism and off-farm employment have become an important and steady source of income for farm households. The most significant change over the last 10 years has been the substantial growth in off-farm labour participation by farm spouses. This paper, based on the neoclassical farm-household, is an attempt to characterize the variables that affect the decisions to work off-farm for the French farm households and the decision whether or not to hire labour on-farm. Furthermore the impact of the Common Agricultural Policy (CAP) on the participation in the off-labour market is studied. In a simplified model where male and female labour are perfect substitutes we can show that the reduction in the cereals price and the set-aside would induce a decrease in the reservation wage and hence an increase in the probability of off-farm participation. On the other hand the receipt of compensatory payment would have a negative impact on the probability of off-farm work participation. Empirical results show that while the CAP reform will increase wives' off-farm participation, education and age have a greater positive effect. Furthermore, simulations show that the impact of the CAP reform on off-farm labour market participation is higher for wives who do not have a high school diploma than for those who do.