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

Author

Listed:
  • Samuele Trestini
  • Serena Szathvary
  • Eugenio Pomarici
  • Vasco Boatto

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 anex anteevaluation 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.

Suggested Citation

  • Samuele Trestini & Serena Szathvary & Eugenio Pomarici & Vasco Boatto, 2018. "Assessing the risk profile of dairy farms: application of the Income Stabilisation Tool in Italy," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 78(2), pages 195-208, March.
    • Handle: RePEc:eme:afrpps:afr-06-2017-0044
    DOI: 10.1108/AFR-06-2017-0044
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    Citations

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    Cited by:

    1. Giampietri, Elisa & Yu, Xiaohua & Trestini, Samuele, 2020. "The role of trust and perceived barriers on farmer’s intention to adopt risk management tools," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 9(1), April.
    2. Ruggiero Rippo & Simone Cerroni, 2023. "Farmers' participation in the Income Stabilisation Tool: Evidence from the apple sector in Italy," Journal of Agricultural Economics, Wiley Blackwell, vol. 74(1), pages 273-294, February.
    3. Pieter W. M. Vasbinder & Antoine W. G. de Vries & Wim Westerman, 2021. "Hydrogen Infrastructure Project Risks in The Netherlands," Energies, MDPI, vol. 14(19), pages 1-19, September.
    4. Luigi Biagini & Simone Severini, 2022. "Can Machine Learning discover the determining factors in participation in insurance schemes? A comparative analysis," Papers 2212.03092, arXiv.org, revised Dec 2022.
    5. Antonioli, Federico & Santeramo, Fabio Gaetano, 2022. "On Policy Interventions and Vertical Price Transmission: The Italian Milk Supply Chain Case," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 47(2), May.
    6. Coletta, Attilio & Giampietri, Elisa & Santeramo, Fabio Gaetano & Severini, Simone & Trestini, Samuele, 2018. "A preliminary test on risk and ambiguity attitudes, and time preferences in decisions under uncertainty: towards a better explanation of participation in crop insurance schemes," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 7(3), December.
    7. Severini, Simone & Biagini, Luigi & Finger, Robert, 2019. "Modeling agricultural risk management policies – The implementation of the Income Stabilization Tool in Italy," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 140-155.
    8. Rippo, Ruggiero & Cerroni, Simone, 2021. "Farmers’ Participation in the Income Stabilization Tool: Evidence from the Apple Sector in Italy," 2021 Conference, August 17-31, 2021, Virtual 315191, International Association of Agricultural Economists.
    9. Trestini, Samuel & Giampietri, Elisa & Smiglak-Krajewska, Magdalena, 2018. "Farmer behaviour towards the agricultural risk management tools provided by the CAP: a comparison between Italy and Poland," 162nd Seminar, April 26-27, 2018, Budapest, Hungary 271978, European Association of Agricultural Economists.
    10. Zinnanti, Cinzia & Schimmenti, Emanuele & Borsellino, Valeria & Paolini, Giulio & Severini, Simone, 2019. "Economic performance and risk of farming systems specialized in perennial crops: An analysis of Italian hazelnut production," Agricultural Systems, Elsevier, vol. 176(C).
    11. Simone Severini & Giuliano Di Tommaso & Robert Finger, 2019. "Effects of the Income Stabilization Tool on farm income level, variability and concentration in Italian agriculture," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 7(1), pages 1-22, December.
    12. Simone Severini & Cinzia Zinnanti & Valeria Borsellino & Emanuele Schimmenti, 2021. "EU income stabilization tool: potential impacts, financial sustainability and farmer’s risk aversion," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 9(1), pages 1-21, December.

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