Explaining determinants of the on-farm diversification: empirical evidence from Tuscany region

Abstract

On-farm diversification towards multifunctional activities is perceived as central in the Common Agricultural Policy (CAP) reform and in the Horizon 2020 strategies, because it strengthens territorial and social cohesion of rural areas. While from a “macro” point of view relations between farm-household diversification and rural economies are central in the process of multi-functionality and in the provision of public goods through agricultural activities, from a “micro” point of view on-farm diversification activities can represent a relevant share of farm income. Agricultural Economics and Rural Sociology have developed models aiming to explain the determinants of on-farm diversification thus providing a set of variables potentially influencing on-farm diversification. The paper applies a count model to explain the number of on-farm diversification activities that are implemented by farms in Tuscany. Since the high number of agricultural holdings that do not apply any diversification activity, we propose a two-step model where, firstly a simulation of adoption of diversified strategy as binary variable is considered and secondly, a model analysing the determinants of diversification intensity among the farms that have decided to diversify is implemented. Results confirm that location near main touristic areas and vicinity to urban markets are important determinants of on-farm diversification intensity. Results highlight a positive contribution of the Pillar 2 agricultural policies both in determining the diffusion of on-farm diversification activities and in influencing the intensity of adoption, while high per hectare Single Farm Payments have a negative influence on diversification intensity.