The Living Income
Community of Practice
MEASURING ACTUAL INCOME
A number of methodologies can be used for calculating the actual or existing incomes of smallholders and their associated communities. This page explains the composition of actual income and a number of actual income calculation options that have been used by various actors.
Actual Income Composition
It is important to realise that the income of a smallholder household may not only come from the farm (via the sale of produce). Income can, in fact, come from multiple sources, and it is not uncommon for household members to supplement collective income by undertaking other activities (e.g. through additional labouring or artisanal work), which is labelled 'off farm income' in the right-hand diagram.
Furthermore, income can come from remittances (e.g. from family members that no longer live at home that occasionally send money), and as such it must be recognised that income related to farm economics may only be component of actual income.
Understanding the composition of actual income is the first step in deciding how one might go about measuring it. The diagram on the right gives a more detailed breakdown of the elements necessary to consider as part of the actual income equation.
Household Economy Analysis (HEA)
HEA is a tool for examining and gaining insights on the current economic status of households and their interactions for addressing development issues and therefore looks closely at actual household incomes. Conceived in the 1990's, the HEA has been widely implemented by various governments and NGO's.
A unique livelihoods-based framework, the HEA is designed to provide a clear and accurate representation of household economies at different levels of wealth and across different parts of the world. It was developed around the premise that you need to know how people make ends meet in order to develop interventions that support rather than undermine them, and so that the impacts of wider economic or ecological change on livelihoods may be forecast.
It can be used for a wide range of purposes including development planning, early warning, policy analysis, poverty analysis and reduction, and income analysis.
The HEA focuses analyses on three particular areas:1) How households in different social and economic circumstances obtain the income and food that they need, which is very useful for determining actual incomes.2) What assets households have and what opportunities and constraints are open to them, which is actually vey useful for thinking about increasing incomes & 3) What options are open to households in times of crisis, which can be used for preparing for and mitigating risk to communities.
Household Income Survey's
Standardised household income surveys can also be used for determining actual incomes. These can require large sample sizes to undertake. A wealth of information already exists on actual household incomes in many countries which can be found through exploring secondary sources. This is very often focused on particular commodities or regions.
The presentations (right) demonstrate various examples of household income surveys. Also, the paper chapter (below) provides detail on the methodology for calculating actual household incomes using surveys. Also, see the 'Existing Information' page for further resources.
Above: A presentation on gathering actual income data. It includes approaches to calculation implemented by KIT, Wageningen University and Malawi 2020.
Above: A webinar by Fair Trade International on their work to calculate actual incomes across their operations through survey's. Click here to view an example report.
Above: A presentation by GIZ describing their process of calculating actual household income using a generic example.
Above: Household income calculation chapter in the paper: 'Demystifying the Cocoa Sector: Ghana & CDI'
Income Measurement FAQ
Looking to measure incomes and the income gap? How do you measure household income when working towards a living income? How do you approach calculating the living income gap? What to do if data is missing or absent?
This FAQ is designed to help LI CoP members understand how to approach measuring smallholder household incomes and the living income gap. Measurement of smallholder incomes and the living income gap is key to understanding and taking action to improve livelihoods. However, smallholder incomes can be multifaceted and complex, and for many reasons, it is unlikely that any two measurement approaches will be the same.
When working towards living income however, aligning around measurement is important wherever possible. Alignment can support collective understanding, warrant comparability across actors and contexts, and ensure credible claims and well-informed decisions around income improvement.
This FAQ aims to support users indentify an approach to measuring incomes and the income gap, orienting to relevant income measurement concepts and principles and providing direction to appropriate guidance.