Assessing the risk profile of dairy farms: application of the Income Stabilisation Tool in Italy

Abstract

Purpose 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. Design/methodology/approach 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. Findings 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. Originality/value 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.

Modeling agricultural risk management policies – The implementation of the Income Stabilization Tool in Italy

“…These decisions could affect income stabilizing properties, viability of mutual funds, income inequality in the agricultural sector and the distribution of benefits across space and farm types. These issues have, for instance in Italy, led to a postponement of the implementation of the IST (Trestini and Boatto, 2015;Trestini et al, 2018;ISMEA, 2015).…”

Prospects for agricultural insurance in Europe

“…Case studies mostly deal with crop insurance for arable crops. They elaborate on the effect of previous loss experience on adoption of insurance (Wąs and Kobus, 2018;Santeramo et al, 2018) (Schulte and Musshof, 2018) and the potential of an income stabilisation tool (Trestini et al, 2018).…”

“…margin insurance and price contracts) and the role of advisory services (Santeramo et al, 2018;Trestini et al, 2018;Wąs and Kobus, 2018);…”

“…two case studies are from the north-western region (the Netherlands; Van Asseldonk et al, 2018;and Germany;Schulte and Musshof, 2018), two from the eastern region, i.e. Poland (Wąs and Kobus, 2018) and Hungary (Zubor-Nemes et al, 2018), and three are from the mid-and southern part of the EU, including Austria (Url et al, 2018) and Italy (Santeramo et al, 2018;Trestini et al, 2018).…”

“…Two papers are on livestock insurance. They cover feasibility of price insurance (Schulte and Musshof, 2018) and the potential of an income stabilisation tool (Trestini et al, 2018).…”