The CAP financially supports (70%) the constitution of mutual funds, that compensate farms of specific sectors suffering an income loss higher than 20%: the so-called Income Stabilisation Tool (IST). Beef cattle farmers are also eligible for this income support tool. IST allows for the use of indexes for the calculation of income losses. Based on costs, revenues, input and output prices, this practice aims at calculating a farm based income index able to determine the entity of income reduction The farmer then can be eligible for an income support from the mutual fund.
The IST has been implemented at a collective level (dairy cooperatives, fruit cooperatives) and at farm level. The main opportunity is to reduce income risk by compensating farms with severe income loss. The main bottleneck is to gain access to farm data and farmers' trust, involvement and their understanding. Key factors of access have been the availability of public support, the effectiveness and the equity among members.
Three lesson can be learned from this innovation:
1. Need for a clear process of data analysis
2. Share results and simulations in advance
3. Simplify as much as possible the methodology of granting income support
The major socio-economic impact is that it reduces the income variability of farms and the impact of market crisis and it reduces the financial impact of market crises and may support credit ranking of bank.
More information about this practice you can obtain at the TESAF Department of the University of Padova, Italy. You can download the presentation below: