Abstract
Diversification has been increasingly recognized as a rewarding farm strategy through which farmers produce on-farm non-agricultural goods and services. In doing so, farmers employ farm inputs (capital, labor, and land) in products other than agricultural goods, with the aim to sell them in the market and increase their income. While a significant body of literature has explored the drivers affecting the adoption of diversification activities, so far little attention has been given to the impact of such adoption on the technical and financial performance of farms. This article intends to provide empirical evidence on the impact of on-farm non-agricultural diversification on the financial performance of family farms in Italy, by using a nation-wide sample of agricultural holdings based on the Farm Accountancy Data Network (FADN) data. We estimated a fixed effects-instrumental variable panel model to deal with two potential sources of bias: self-selection in the diversification strategy and simultaneity, due to the fact that farmers often decide to diversify with outcome expectations in mind. Our findings show that in Italy the diversification strategy has a positive impact on the financial performance of family farms, which is second in magnitude only to that of land growth strategy. Our results also confirm the positive impact of efficiency and clarify that education has a positive return to investment when it is specialized in agriculture.
Highlights
Diversification is recognized as a strategy to increase the goods and services that are produced on-farm and are saleable to the market
We find that while general education does not have influence on the financial performance of farms, agricultural specific education has a positive impact on the farm results
Existing studies mainly refer to a single diversification activity—often agritourism—and they usually have a local or regional focus
Summary
Diversification is recognized as a strategy to increase the goods and services that are produced on-farm and are saleable to the market. It is becoming a key strategy for an increasing number of farms both in developed and developing countries, in order to improve farm results and farmers income [1,2]. On-farm diversification in non-agricultural activities (hereafter only diversification) has been increasingly recognized as a successful business strategy in which a farmer produces non-agricultural goods and services by employing farm resources (capital, labor, and land), with the aim to sell them in the market [4,22]. In 2013 approximately three quarters (76.5%) of the EU-28 s agricultural labor force was provided by family members [25]
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