Determinants of farm diversification: entrepreneurship, marketing capability and family management

Abstract

Farm diversification has been widely regarded as a panacea for improving the rural economy within the Common Agricultural Policy (CAP). However, the CAP provides less support for the entrepreneurial behavior that farmers need to exhibit to make diversification successful. Previous studies have identified the capabilities and preferences of farmers as determinants of diversification. Although, the complex relationship between these factors and diversification decisions is not well understood. Using data from a survey of 182 farms located close to urban areas in the UK, this paper reports on one of the first studies to quantitatively explore farm diversification through identifying the impact of the entrepreneurial behavior of farmers and the role of family businesses. Using structural equation models, the results suggest that farmers’ marketing capabilities mediate the positive influence that entrepreneurial ability has on diversification. Moreover, while preferences for maintaining the farm as a family business have a negative effect on entrepreneurship and diversification, a desire for the family business to make a social contribution has a more positive impact. These findings have significant implications for EU rural development policies and for the future development of rural policies in the UK in light of its impending departure from the EU.