Effects of agricultural policy reforms and farm characteristics on income risk in Swiss agriculture

Abstract

Purpose -The purpose of this study is to examine the effects of agricultural policy reformspecifically the change from market to direct payment support -on income variability of Swiss farming households. In addition, the observed heterogeneity in income risks across farms and time is explained in terms of farm and regional characteristics. Design/methodology/approach -Unbalanced farm-level panel data of the Swiss farm accountancy network (FADN) are used to construct coefficients of variation of five-year overlapping time intervals for total household income and gross farm revenues over the period 1992 to 2009. Linear fixed effect models are applied to measure the effect of specialization, off-farm income, direct payments, farm size, and liquidity on the variability of gross farm revenues and household income in the valley, hill, and mountain regions. Findings -The switch from market-based support to direct payments has decreased the variability of farm revenues and household income. The strong reliance on direct payments serves as insurance for most farmers and reduces both household income and revenue risk. Off-farm income can be used by farmers to reduce household income risk but it increases revenue risk in the valley regions. In all of the regions considered, farm size has a positive effect on household income risk and a negative effect on revenue risk. A high degree of specialization increases both gross revenue and household income risk. Potential revenue insurance contracts should specify farmers' off-farm employment, the degree of specialization, farm size, and regional specific risk profiles. Originality/value -This paper assesses the complementary effects of specific farm characteristics and risk management strategies with regard to both farm revenue and household income risk. Influences of agricultural policy changes on income risks are also empirically assessed at different spatial scales.

Do CAP direct payments stabilise farm income? Empirical evidences from a constant sample of Italian farms

“…Moreover, differences between CV(MI) and CV(FI) are almost always statistical significant at 1 % (Table 4). These results suggest that the extent of the stabilising role of DP increases as the relative level of DP increases and confirm that farms enjoying higher levels of DP can afford to cope with high level of market income variability better than other farms (El Benni et al 2012). DP are also characterised by some variability: the median value of the coefficients of variation of DP calculated on all farms of the sample is around 0.44 although there are relevant differences among the considered types of farming.…”

“…In particular, the relative contribution of DP to income variability increases from the lowest to the highest PSE quartile. However, because such farms have an higher share of income variability coming from revenues, it may also support the hypothesis that farmers with high level of DP are more willing to take risk from agricultural production (El Benni et al 2012). …”

“…DP have been claimed to play an income stabilising role (OECD 2009;Cafiero et al 2007) and the limited empirical evidences support this hypothesis (Agrosynergie 2011;El Benni et al 2012;Enjolras et al 2014). Italian farms use management tools (Direct payments, crop insurance and inputs) to improve their income and reduce its volatility (Enjolras et al 2014).…”

What may determine off-farm income? A review

“…On the one hand, generating an additional income resulted in the increased level of the revenue risk. Consequently, El-Benni et al (2012) argued that designing the revenue insurance product should include the off-farm income. Lagerkvist et al (2007) shed some light on the interrelation between the off-farm labour (and consequently, the off-farm income) and the farm capital accumulation.…”

“…El- Benni et al (2012) analysed the effect of agricultural policy on the income variability of Swiss farms. On the one hand, generating an additional income resulted in the increased level of the revenue risk.…”