EU income stabilization tool: potential impacts, financial sustainability and farmer’s risk aversion

Abstract

The Income Stabilization Tool, a risk management scheme introduced within the Common Agricultural Policy (CAP) 2014–2020, could help European Union farmers manage the income risks they face. This study assesses the potential impact of implementing this tool through the maximum level of contribution to the fund which determines an indifference to participate in the fund and its financial sustainability. The study relies on an expected utility approach and assesses the variability of loss ratios over time using a sample of Italian hazelnut farms as a case study. The participation depends on the level of farmers' contributions and their degree of risk aversion. However, the CAP public support makes the scheme financially sustainable.