The role of CAP direct payment in the support and stabilisation of farm income: empirical evidences from a constant sample of Italian farms

Abstract

The main objective of CAP Direct payments (DP) has been to increase and stabilise farm income together with a large number of additional goals (Gardner, 1991). Despite its importance, there are limited empirical evidences on farm income variability over time at farm level apart Vrolijk and Poppe (2008) and Vrolijk, de Bont, van der Veen, and Poppe (2009). The analysis focuses of the following research questions:

•     What is the amount of the support provided by DP? How the income of Italian farms will be affected by reductions of DP levels?

•     What is the extent of farm income variability over time? Is it the same in all types of farms?

•     Where is this variability coming from?

•     Do CAP direct payments reduce farm income variability? How do DP affect it? Are DP targeted to stabilise the income of those farms facing larger income variability?

 The analysis has been developed on the individual farms belonging to the whole Italian sample of the EU FADN farms during all years of the decade 2003-2012. The variability of farm income (FI) is assessed by calculating variance and Coefficient of Variation (CV) over the 10 year period for each farm for each relevant income component. The role of DP on income stabilisation is assessed by means of variance decomposition by income sources (Burt and Finley, 1968; El Benni and Finger, 2013; Mishra and El-Osta, 2001).

The presence of DP allows for a reduction of the variability of farm income: the variability of FI when DP are not accounted for is higher than that of the whole FI. Finally, DP seem to be not targeted to those farms facing the highest level of market income variability. These results support the hypothesis that there is a potentially large room for better design the DP policy to reduce income variability.