Is non-farm income diversification a feasible option for small-scale farmers? An assessment using a composite fuzzy indicator

Abstract

European politicians encourage the income diversification of rural households through various measures. Although a knowledge of farm households’ potential for non-farm income diversification seems important for finely targeting such policy measures, thus far no attempt has been made to summarise the various determinants of income diversification in a single figure. This contribution aims to close this gap. A composite fuzzy indicator that measures farm households’ potential for non-farm income diversification is developed and applied to 626 small-scale farm households in Bulgaria, Hungary, Poland, Romania and Slovenia. The indicator summarises the incentives and capacities for non-farm income diversification on the individual household member level and on the household and regional levels in a single measure using fuzzy logic methodology. The composite fuzzy indicator performs well and the results for the single small-scale farm households can easily be retraced. The indicator not only singles out the households that have the potential for non-farm income diversification but also shows the reasons for this. The indicator shows that most of the 626 households studied have a high potential for non-farm income diversification and that all are pushed toward diversification by the small size of their farms. The composite fuzzy indicator also identifies farm households that are trapped in a desperate situation due to unfavourable chances of finding a job in the labour market and long distances to the nearest large urban centre. Decision makers could utilise the composite fuzzy indicator to finely target diversification measures to the multifaceted conditions of farm households.