Stability of farm income: The role of agricultural diversity and agri-environment scheme payments

Instability (or variability) in farm income represents a significant challenge for farm management and the design
of public policies. Identifying farming practices which can increase the stability of farm income may help farms
to cope with shocks such as extreme weather events and economic challenges. Farming practices associated with
increasing agricultural diversity and agri-environment schemes are considered to improve ecological functions and landscape resilience, however, their effect on the stability of farm income is not well known. Using a multilevel model, we analyse the effect of a range of farming practices and subsidies on the stability of farm income, and their relative importance, using four different measures of stability. We examine data for 2333 farms in England and Wales, from 2007 to 2015, and use separate multilevel models for a range of different farm types to provide targeted recommendations for farmers. Here we show that greater agricultural diversity (i.e. lower degree of specialisation in different crop and livestock activities) increases the stability of farm income, in dairy, general cropping, cereal and mixed farms. Agricultural diversity is a particularly important factor for general cropping farms; increasing the degree of specialisation by one standard deviation (we use standardised coefficients), increases the variability of income by approximately 20%. Dairy, general cropping and mixed farms that receive more agri-environment payments also have more stable incomes, reducing variability by between 4 and 8%. In contrast, an increase in direct subsidies paid to farmers based on the area farmed is associated with a relatively large decrease in the stability of farm income, ranging from 6 to 35% across most farm types. Reducing the intensity of inputs is found to be an important factor increasing the stability of income for all farm types; on average reducing the intensity of inputs reduces variability of income by 20%. Practices associated with increasing agricultural diversity and agri-environment schemes have previously been found to lead to a better provision of ecosystem services and resilience to abiotic stresses, reducing the need for expensive chemical inputs. Engagement in environmentally sustainable farming practices including agri-environment schemes, increasing agricultural diversity, and reducing the intensity of inputs, may increase the stability of many farm businesses whilst at the same time reducing negative impacts of farming on the environment.