The risk management tools in agriculture enable farmers to anticipate, avoid and react to shocks and agricultural risks. The Common agricultural policy includes mechanisms to support risk management of the European farmers and respond to crises. An ambition of the recent CAP proposal is to increase the focus on risk management and stabilisation of farmers′ income. Under Pillar 2, the CAP offers the support for less favoured farms, which have experienced the production or income loss in the way of insurance premium, mutual funds, and Income stabilisation tool. However, only few European countries have been using these tools operationally. The risk management tools were subjected to criticism, mainly because of many obstacles in their implementation; therefore, since 2018, the risk management toolbox has been further extended. In the paper, we focus on one of the CAP tools from Pillar 2, the Income Stabilisation tool, and examine the potential effect on farmers′ indemnification in Slovak agriculture.

In the European Commission (EC) proposals for the Common Agricultural Policy (CAP) post2020 is emphasized the aim to better support the resilience of agricultural systems in the European Union (EU). This resilience is based on the concern that the agricultural sector should be supported in responding to current and future economic, societal, and environmental challenges and risks. Managing risk in farming includes number of activities and strong effort of farms and policy makers. One part of risk management refers to income stabilisation, aimed at decreasing the unstable financial situation and high level of income volatility in European agriculture. In the EU, every year at least 20% of farmers experience an income loss of more than 30% compared with their average income in the three previous years. The public instruments to mitigate the income risk of farmers included under the Pillar II (insurance premiums, mutual funds, and the Income stabilisation tool) have been implemented only by very low number of EU countries. In the paper, we analyze the ability to decrease the instability of Slovak farmers with the use of Income stabilisation tool of CAP. The Income stabilisation tool (IST) can be used to indemnify the farmers, who experienced a “severe drop” in income, reflecting the income loss of more than 20% or 30% compared to the 3-years average annual income, or the 5-years average annual income, excluding highest and lowest entry (Olympic average). The IST has not been used in the Slovakia, or any other European country operationally so far.

Research background: Risk in agriculture is a difficult concept to recognize, because farmers are exposed to different types of risks that influence their agricultural activity. The stability of farmer´s income is threatened by various factor interconnected to each other, such as market risks (price volatility, market shocks), financial risks (indebtedness, loans and credits), production risks (climate change, pests and diseases, biosecurity), technological risk (digitization, technological progress), institutional risk (regulations, environment and tax policy), and human resource risk (physical and mental health). Therefore, for the farmers it is very challenging to implement appropriate and effective risk management tools, in order to stabilize their income. Purpose of the article: Risk management offers a variety of strategies and instruments on the farm or aggregate level to copy with the risk. Also in the Pillar II of CAP 2014-2020 were introduced new risk management tools, as a response to greater price and yield variability among European countries. In the paper, we decided to analyse and compare several public risk management tools that can farmers use to increase their welfare and stabilize income. Methods: The national agricultural policies, as well as CAP are aimed at compensating farmers for the negative effects, however it is not so easy to govern and implement the tools on the farm level. The paper provides a comparative analysis of selected tools that are the most suitable for Slovak agricultural producers. Findings & Value added: The results of the paper can give the farmers ability to compare and choose between public risk management tools that could be used for risk exposure.

Research background: The main goal of the Common Agricultural Policy (CAP) is to support farmers and improve their productivity. Agriculture is a specific sector of the economy, characterized by income support for farmers to ensure the availability of quality food. However, the question remains whether Slovak farms are financially healthy under the influence of the reformed CAP of European Union (EU)? Purpose of the article: The main goal of the article is to evaluate the financial health of Slovak farms using selected prediction techniques pointing to the impact of the CAP of EU. Methods: We have used data obtained from the financial statements of Slovak farms in the years 2009-2020. The financial health of farms will be assessed using selected generally constructed models of multivariate discriminatory analysis (Altman Z-score, IN 05, Creditworthiness Index, Taffler model), but also prediction models that have been specially constructed for the Slovak agricultural sector, such as G-index and CH-index. To detect the statistical differences between the years 2009-2013 and 2014-2020 in the value of prediction models of farms were used statistical t-tests of conformity in the surveyed sample. Findings & Value added: The results can be evaluated on two levels. The first of them is a look at the analysis of the financial health of Slovak farms in the context of the interpretation of the regulations of the Common Agricultural Policy of EU. The second output is an evaluation of the financial health of farms in the selected time period.

Managing income risk in agriculture is one of the important issues for farmers and policy makers nowadays. There exist a set of instruments and mechanisms for farmers to face the income volatility, including the individual or public support. Under II Pillar, the Common Agricultural Policy (CAP) offers the support for less favoured farms in the way of insurance, mutual fund, and Income stabilisation tool. The Income Stabilisation Tool (IST) represents the compensation to farmers for a “severe drop” in income, if the farm experienced an income loss of more than 30% compared to the 3-years average or the Olympic average of the preceding five-year income realizations. However, none of the EU countries has been currently using the tool operationally. The main objective of the paper is to investigate the potential effect of the Income Stabilisation Tool on mitigation of income risk in Slovak agriculture. The results of the paper show the existing possibility to improve financial situation and reduce the income inequality of particular Slovak farms in the future.