Direct payments, crop insurance and the volatility of farm income. Some evidence in France and in Italy

Abstract

Volatility of farm income represents a major challenge for farm management and the design of public policies. This paper measures the extent to which risk management tools, especially direct payments and crop insurance, can significantly reduce crop income volatility in France and in Italy. We use an original dataset of 9,555 farms for the period 2003-2007 drawn up from the Farm Accountancy Data Network (FADN) and three different econometric models to explain the volatility of crop income. The results are contrasted between the specialization of the farms and the two countries: Italian farms use management tools (CAP payments and crop insurance) so as to improve their income and to reduce its volatility (crop insurance, inputs). French farms use the same instruments to increase their income and therefore its volatility while they tend to substitute CAP payments to production. These results question the efficiency of structural policies aimed at stabilizing the farmers' income.