Forecasting the dynamics of farm income: the case of the olive sector in Spain

The objectives of this paper are to determine the factors that influence interannual movements of farms between income categories, and to forecast future income categories of farms under several different market, climate, and policy scenarios. To achieve these goals, a methodology combining the Markov chain model with a partial proportional odds model is proposed. Spanish olive farms are taken as an illustrative case study. The results show that the income dynamics of these farms are mainly influenced by off-farm uncontrollable factors such as the output prices, the weather conditions, and the policy support. Moreover, farm-, farmer-, and management-specific factors also play a relevant role.