This paper bridges the gap between theory and practice in the application of the Income Stabilisation Tool (IST). With an application to the dairy sector, the purpose of this paper is to propose methodology for the quantification of reference income when farm structural change occurs and estimate the role of farm attributes on the probability of income loss, offering an ex ante evaluation of farm resilience to risk.
Based on a balanced Farm Accountancy Network farm-level panel ranging from 2008 to 2014, three hypotheses of reference income calculation are tested to assess whether farms structural changes over the years significantly affect the level of IST indemnification. The role of farm characteristics on the probability of an income reduction is then evaluated by estimating a multinomial logit model.
Results show that farms’ structural changes significantly affect IST indemnities and need to be considered in calculating the reference income. The estimated model suggests that farm characteristics significantly affect the probability of a severe income drop and hence risk resilience. Extensive livestock systems seem to reduce the probability of an income drop, while farms in upland areas managed by young farmers seem to experience increased risk exposure.
The research provides one of the first attempts to define risk profile of dairy farms by modelling the probability of an income reduction on observable attributes. Indeed, among different sectors, dairy farms emerge as the main candidates for the application of the IST.
The authors thank the anonymous referees for their valuable comments and suggestions on an earlier version of this paper. The authors accept full responsibility for the content of the paper. This research is linked to the Project “Strengthen farms resilience to market volatility through the implementation of the Income stabilization Tool (IST) under the CAP Post-2013” (CPDA153138) financed by the University of Padova, Italy.
Trestini, S., Szathvary, S., Pomarici, E. and Boatto, V. (2018), "Assessing the risk profile of dairy farms: application of the Income Stabilisation Tool in Italy", Agricultural Finance Review, Vol. 78 No. 2, pp. 195-208. https://doi.org/10.1108/AFR-06-2017-0044Download as .RIS
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