Did the CAP reform affect off-farm labour participation in Italian farms?

The process of change in the Common Agricultural Policy (CAP) from trade and market distorting measures to more neutral interventions has been long, but in this process the 2003 reform (the so-called Fischler reform) has been the most important step, leading to a more decoupled, and hence less market distorting, support (Oecd, 2004) and introducing the fully decoupled Single Farm Payment Scheme (SFP). In this paper, we estimate a model of operators’ off-farm labour participation from a panel of Italian COP farms drawn from the FADN. To this purpose we use a random effects probit model, thus controlling for unobserved heterogeneity. The results suggest that the effects of the reform on off-farm labour participation, if any, are weak. No variable directly related to the CAP reform is significant. These results are not in contrasts with the theoretical considerations, since the reform entails both wealth and substitution effects that tend to offset each other. Also, rigidities in the labour market tend to contrast adjustments to the changing conditions. Our results also suggest that changes in relative prices affect off-farm labour participation of farm operators, but that this effect depends on the labour intensity of the different crops. Therefore, the effects of the reform on off-farm labour participation can be due to these changes, but the role of the CAP reform in the changes in relative prices is uncertain, and out of the scope of this paper