Interlinked diversification strategies in Italian rural households

This paper analyzes interlinkages between farm household diversification strategies in rural Italy. Existing studies often ignore the correlation between different strategies that are in competition for the same resources (land, labor, capital). This can lead to biased results. We employ a multivariate probit model to explicitly study the joint-decision making process of resource allocation between different strategies and to identify their potential substitutability or complementarity. Data are derived from the 2006 Farm Accountancy Data Network (FADN). We explain diversification based on internal and external characteristics. External determinants are linked to the location of the farm and include: the distance to urban population centers; landscape features; social capital in the local community. Farm-related internal determinants include farm size; specialization; tenancy restrictions; labor use; business structure. The results highlight the importance of social capital and networks in developing diversification in Italian rural areas. Furthermore, diversification is more likely to occur under conditions of low specificity of the farm’s internal resources. Therefore, farm businesses which have developed flexible capacities and skills are more likely to combine agricultural with non-agricultural activities. Furthermore, we find both substitution and complementarity between different strategies. The presence of potential synergies but also trade-offs in different types of diversification should be taken into account when tailoring rural development measures. Current EU rural development policies rely on three alternative development paths for the farm (three axes). We argue that more room should be given to “mixed” strategies, mainly via the combination of measures belonging to different axes. The rural development plans for the period 2007-2013 allow the use of packages of different measures in special circumstances. Our results indicate that this approach should be used more systematically in the future, for example by introducing an axis fully dedicated to combined measures in order to support multiple diversification strategies