If you calculate the cost of a decent standard of living in a particular geographic area this figure can be used as a living income benchmark. This works on the assumption that if a smallholder household is earning a combined income that is sufficient, or more than sufficient, to cover the costs associated with a decent standard of living, then it is likely that the household is earning a living income.
Once you have this benchmark there are a number of ways in which it can be used, some of which are described in the video and below:
Understanding the income gap for a household or groups of households.
A living income benchmark in and of itself is a useful reference for evaluation, however when compared with other information it becomes an even more powerful tool. If you have data on existing income levels then a living income benchmark can be used to monitor how specific farming households, or a whole farming sector, are performing in relation to it.
This comparison allows you to answer questions such as: what is the gap between current incomes and living income? and, what % of farming households have incomes aboveliving income in an area? With this information one can make decisions around how to address the gap.
Set targets for household income and model how to reduce the income gap.
A living income benchmark can also be used as a target or reference in farm economics models, where changes to farming systems and other drivers of household income can be tested (modelled) to see how much specific improvements could move farming households toward a living income. In other words, a living income benchmark could be a target for broader livelihood interventions.
Click here to see an example of a farm economics model created by the World Cocoa Foundation.
Figure 1. Model observing the contributions of various factors in improving existing incomes in the Malawi tea sector to living income levels. *Click here to view study*
Examine the return on farm labour
Benchmarks can be used further to determine what the return to household labour would need to be in order to ensure that remuneration of all available household labour hours would be equivalent to a living wage, or that the household is able to earn a living income with all available working hours (assuming workers work an acceptable number of working hours, with time for rest, etc.).
Help in deciding a fair price for different commodities
Breaking the benchmark down even further it can also be used to determine what a fair price might be for commodities purchased from smallholders. If the proportional contribution of a particular crop towards incomes is known (e.g. cocoa) and the difference between actual and living income is known then the combination of these two pieces of information can be used to produce what might be considered a fair price reference for that commodity.
When thinking about farm and crop-specific targets it is also incredibly important to consider is the proportion of income that farming provides towards the total household income.
Click here to visit the 'Closing the income' page to find out more about farm income levers such as fair pricing.
Inform setting of targets for farm and crop specific indicators and analysing related indicators.
One can also use benchmarks to establish crop income targets. For example, if one crop in an area on average contributes 70% of total farm income and another crop 30%, appropriate and realistic revenue targets can be set for the respective crops. These targets can then be used in farm economics models to estimate how much change in land area, price, or productivity would be needed to get average farmer incomes up to this benchmark.
You can also use farm related indicators and targets to: