Financial performance of connected Agribusiness activities in Italian agriculture

Gabriele Dono, University of Tuscia

Rebecca Buttinelli, University of Tuscia

Raffaele Cortignani, University of Tuscia

Rural development policy was introduced as the second pillar of the CAP as part of the Agenda 2000 reform. Since then, with the aim of protect-ing rural heritage and creating new jobs, it has also been dedicated to sup-porting multifunctionality and the diversification of agricultural activities. The focus on diversification increased in the 2007–2013 period, with Axis 3 (quality of life in rural areas and diversification of the rural economy), as well as in the 2014–2020 programming period, extended up to 2023 and 2025 for many RDP projects, with priorities 2 (Farm Viability and Competitiveness) and 6 (Social inclusion and economic development).1 In the latter period, the Italian Regions allocated 624 million euros, 3.2% of the entire RDP budget, for sub-measures 6.2 (Aid for start-up of non-agricultural activities in rural areas) and 6.4 (Investments to create and develop non-agricultural activities).

The budget has been reduced in 2020 over the same period in 2018, linked to the COVID-19 crisis, especially for activities such as agritourism, educational farms. Yet, requests for support for operations related to diversification have been substantial, making funding insufficient in many cases (ISMEA, 2020).In the period 2010–2019 the trend to diversify agri-cultural activities has notably grown and in 2019 about one fifth of the total value of agricultural production (€ 12.5 billion) came from secondary and support activities. Among others, the first-stage processing of agri-cultural products increased from 1.5 to 2.4 billion euros in the whole period, while direct selling of farm products grew by 4.3% in 2018–2019 (CREA PB, 2021; ISTAT, 2020). Farms engaged in related or secondary activities are concentrated in the Centre-North of Italy, which indicates an imbalance in the development of these activities but also a great potential for further expansion.The scientific literature treats the intensification and propagation of these activities as the effect of a change in EU agricultural policies and in the choices of farmers seeking to stabilize and supplement their incomes.

In this regard, an important line of analysis examines the factors influencing farmers’ decision to diversify or undertake other activities besides conventional agri-culture (Mishra et al., 2004; Rivaroli et al, 2017; Barbieri, 2010). A wide debate therefore concerns the influence of the farmer’s age and education, the presence of female labour, the degree of production specialization and the operational size of the farm. McNamara and Weiss (2005) and Meraner et al. (2015) claim that larger farms diversify; in contrast, Mishra et al. (2004) claim that larger farms tend to specialize instead. For tourism-related activities, the influence of other factors is also considered, such as public support or the environmental characteristics of the area where the farms are located (De Rooij et al., 2014; Boncinelli et al., 2018; Biczkowski et al., 2021). Proximity to urban areas and consumers is also shown to play a key role, especially in terms of direct selling (Zasada et al., 2015; Pölling and Mergenthaler, 2017).

Conversely, it is also highlighted that farms far from urban areas can be pushed to diversify due to the lack of alternatives (Bartolini et al., 2014; Arias et al., 2015). At the same time, the repercussions of these activities on the development and social and environmental well-being of one’s own territory are also considered (Arfini et al.,2019a, 2019b; Raimondi et al., 2018; Belletti et al. 2017; Heringa et al., 2012; Lange et al., 2013).The analysis also concerns the production, economic and financial results obtained by the farms that are dedicated to these activities. Studies have investigated the impact of these activities on farm work (Chaplin et al., 2004; Raimondi et al., 2018), on technical efficiency (Lakner et al., 2018, Arru et al., 2019) and on income (Barbieri, 2013; Barnes et al., 2015; Salvioni and Fontanella, 2013). Khanal and Mishra (2014) study the financial situation of these farms and state that the income of agritourism families is higher than other agricultural households. According to Joo et al. (2013) agritourism has a positive effect on financial sustainability only on small farms.

Salvioni et al. (2020) conclude that diversification also has a positive impact on the financial performance of Italian farms.Below we focus our attention on the financial condition of the farms engaged in these activities. We study their cash flows which, according to Fazzari et al (1988) and Kaplan and Zingales (2000), measure the firm’s dependence on internal funds, helping to explain its investment choices, the ability to obtain credit and, hence, to finance investments. Our analysis follows the approach of Dono et al. (2021) which frame financial sustainability in the ability to offset the depreciation of the production system with cash flows. Specifically, these authors evaluate the ratio between Free Cash Flow on Equity (FCFE) and the value of depreciation (F/D index) in a constant sample of FADN farms over the period 2014–2016, and show that F/D is higher than 1 in most types of specialized farms, while it is less than 1 in non-specialized types.

Dono et al. (2021) examine the financial condition of the ensemble of Italian farms, focussing on the different technical-economic orientation sectors. Here we deepen the study of their FADN sample by examining the financial condition in the farms that diversify their activities. In this regard, we focus on first processing and direct selling of farm products, as well as on farmhouse. These activities require more profound changes in entrepreneurial performance, unlike the electricity production, the provision of farm subcontracting services and the land leasing, which are excluded from our analysis. We also consider organic farming that, while managing typical agricultural practices, modifies the classic profile of the farm and its productions, abandoning the conventional approach. Finally, we include the supply of quality products that, with the single farm, often involves other units in areas where productions with typical and homogeneous attributes are made.

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