THE ROLE OF CAP RISK MANAGEMENT IN INCOME STABILISATION: EMPIRICAL EVIDENCE OF IST IN SLOVAKIA

Abstract

In the European Commission (EC) proposals for the Common Agricultural Policy (CAP) post2020 is emphasized the aim to better support the resilience of agricultural systems in the European Union (EU). This resilience is based on the concern that the agricultural sector should be supported in responding to current and future economic, societal, and environmental challenges and risks. Managing risk in farming includes number of activities and strong effort of farms and policy makers. One part of risk management refers to income stabilisation, aimed at decreasing the unstable financial situation and high level of income volatility in European agriculture. In the EU, every year at least 20% of farmers experience an income loss of more than 30% compared with their average income in the three previous years. The public instruments to mitigate the income risk of farmers included under the Pillar II (insurance premiums, mutual funds, and the Income stabilisation tool) have been implemented only by very low number of EU countries. In the paper, we analyze the ability to decrease the instability of Slovak farmers with the use of Income stabilisation tool of CAP. The Income stabilisation tool (IST) can be used to indemnify the farmers, who experienced a “severe drop” in income, reflecting the income loss of more than 20% or 30% compared to the 3-years average annual income, or the 5-years average annual income, excluding highest and lowest entry (Olympic average). The IST has not been used in the Slovakia, or any other European country operationally so far.