The effect of agricultural policies and farm characteristics on income variability

Abstract

This paper estimates how direct payments provided by the Common Agricultural Policy (CAP) affect variability of farm income over time. The analysis is based on robust regression estimations developed on a cross section database of a constant sample of 2402 Italian farms during the decade 2003-2012. Results show that CAP direct payments allow for a reduction of the variability of farm income being less variable than other income sources. This suggests policy makers should support the continuation of such policy if income stabilisation is perceived as a relevant goal. However, regression results also provide evidences that structural immobility increases the variability of farm income while labour intensity does the opposite. This suggests that such goal could also be pursued by policies fostering farm structural change.