IJPP ISSN: 2239-267X Economic performance and profitability of agricultural holdings in Inner Areas Luca Cesaro, Sonia Marongiu Re sear c h er s, C RE A Co un cil fo r Ag r ic ul t ur al R es ea r ch a nd E co no mi c s - U ni t: P o l ic y and B io eco no m y, V ia P o 1 4 , 0 0 1 8 9 Ro ma , lu ca. ce sar o @cr ea. go v. i t, so nia. ma r o n g i u @cr ea. go v . it KEYWORDS: Inner areas; FADN; Profitability; Performance; Balance sheet. ABSTRACT The National Strategy for Inner Areas was launched by the Italian Government in 2014 to improve the quantity and quality of services (education, health and mobility) in these areas and to promote development projects enhancing the natural and cultural heritage and local production chains. To fulfil the strategy, specific funds have been provided to the Italian Regions and Autonomous Provinces. The Strategy highlights some critical elements and in particular the negative variation in Utilized Agricultural Area (UAA) and number of agricultural holdings. Despite the general abandonment of farmland, the performance and profitability of some agricultural systems in Inner Areas are comparable with those located in the Centres. IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 100 mailto:luca.cesaro@crea.gov.it mailto:sonia.marongiu@crea.gov.it Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas This paper analyses the economic results of the holdings surveyed through the Italian Farm Accountancy Data Network (FADN) during the period 2012-2014 and belonging to four Types of Farming: cereals, oilseed and protection crops (COP), viticulture, fruit sector, livestock. Holdings have been classified following the same criteria as the National Strategy in order to compare the performance and profitability of agriculture in Inner Areas and Centres. The main instrument through which the comparison is made is the Income Statement, a part of the Balance Sheet used in the assessment of holding profitability. The economic analysis is conducted at a subnational level (NUTS level 1) considering five macro-regions: North-West, North-East, Central Italy, South Italy and Islands. The paper highlights the difference in the most important budgetary outcomes and in a set of selected income indicators related to production factors (land and labour). INTRODUCTION The National Strategy for Inner Areas has been developed in Italy since 2012 with the aim of improving the quality of life and the economic well-being of people living in isolated and scarcely populated areas and to invert the demographic trend. Inner areas are defined as those areas far away from large and medium-size urban centres and related infrastructures. Essential services (healthcare, education and transport) are concentrated in urban centres and distance affects the quality of life and welfare of inner areas inhabitants. Despite this, Inner Areas have important environmental resources and a high diversification of activities as a result of the dynamics of different development paths and strategies. Natural resources include water resources, forests, natural and human landscapes, cultural resources and agricultural systems. Agriculture and agri-food systems, in particular, are considered as key factors in the development of Inner Areas and IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 101 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas their promotion is an important strategic element. According to an analysis based on the Italian Trade Chambers Association (Infocamere) database, almost 43% of municipalities in the Centres (service centres and belt areas) are specialized in the primary sector while this percentage rises to almost 73% in Inner Areas (Barca et al., 2014). There has been a greater tendency towards a more widespread agricultural specialization than the average in Southern Italian Inner Areas (Abruzzo, Molise, Campania, Basilicata, Sicily, Sardinia) than in Central and Northern Italy. Despite the relative importance of agriculture in many Regions, a comparison between the 1982 and 2010 Census highlights a decrease in the extension of the Utilized Agricultural Area (UAA) and number of holdings. However, the presence of agricultural systems with good performance in terms of productivity and profitability can be observed and considered as strategic in the development of the specific districts. The accounting analysis of specific Type of Farming based on the Italian Farm Accountancy Data Network (FADN), permits costs, revenues and profits of agricultural holdings to be estimated. In FADN all the holdings are geo-referenced and this makes their classification possible on the basis of the same criteria as those applied in the Strategy. FADN data have been used for several territorial analyses (Terluin et al., 1995; Stolbova and Hlavsa, 2008; Marongiu and Cesaro, 2010; Kempena et al., 2011) but there are no specific studies based on an accounting analysis specifically for agricultural holdings located in Inner Areas. The aim of this paper is to give a general overview on the economic results in four important Types of Farming (cereals, oilseed and protection crops - COP, viticulture, fruit sector and livestock) surveyed by the Italian FADN during the period 2012- 2014. FADN is an important source of microeconomic data based on bookkeeping principles and gathers accountancy data from EU IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 102 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas agricultural holdings every year. The comparison is made on the basis of the economic results accounted in the Income Statement and assessing the profitability and productivity of the considered agricultural systems. Even if most structural and economic indexes are lower in Inner Areas (especially those related to work), the productivity per hectare is sometimes similar, emphasising a comparable competitiveness and economic performance. The Strategy for Inner Areas and the classification of Italian territory in terms of “marginality” (distance from health care and education structures) is described in the first paragraph together with an analysis of the different importance of agriculture in Inner Areas and Centres. In the second paragraph, the structural characteristics of four Types of Farming, selected on the basis of FADN results for the 3-year period 2012-2014 are presented, while the economic analysis is the main focus of the third paragraph. The performance and profitability (in terms of costs, revenues and economic indexes) of the holdings located in Inner Areas and Centres are compared on the basis of the Income Statement elaboration, as provided by the Italian FADN. In the final paragraph, some concluding remarks are provided. THE STRATEGY FOR INNER AREAS AND THE IMPORTANCE OF AGRICULTURE The Strategy for Inner Areas was launched in 2014 in a document drafted by the Italian Department of Development and Economic Cohesion as not just a structural development policy but also a new way to recognize rural deprivation (Barca et al., 2014). Its aim is to improve the quality of life and economic well-being of people living in isolated and scarcely populated areas through interconnected projects focused on selected fields of intervention and priorities. IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 103 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas The identification of Inner Areas is based on a polycentric consideration of the Italian territory, characterized by a network of municipalities and aggregation of municipalities (Service Provision Centres) which areas with different levels of spatial remoteness gravitate around (Barca et al., 2014). The distance between these areas and the urban centres limits citizens’ access to essential services affecting their quality of life and level of social inclusion. The classification focuses on marginality in terms of distance from health care and education structures (Higgs and White, 1997). Following this criteria, the Italian territory has been mapped identifying six classes (Figure 1): A. Single-municipality service centres B. Multi-municipality service centres C. Belt areas (up 20 minutes from the centres) D. Intermediate areas (from 20 to 40 minutes) E. Peripheral areas (from 40 to 75 minutes) F. Ultra-peripheral areas (over 75 minutes) IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 104 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas Figure 1: Classification of Italian Territory according to the Strategy for Inner Areas Source: Agency for Territorial Cohesion, 2014 Inner Areas are identified by grouping the intermediate, peripheral and ultra-peripheral areas. They include 51.1% of Italian municipalities, 22.5% of the national population and 59.8% of the national territory. Since the late 1970s, Inner Areas have been affected by a negative demographic trend (-8.1% in peripheral areas and -5.3% in ultra- IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 105 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas peripheral areas during the period 1971-2011), an increase in the number of elderly people and an increasing migration flow. This has resulted in a change in the use and destination of the land. The consequent loss of active protection and increased hydrogeological risk are considered among the worrying phenomenon that could affect these areas. Agriculture plays an important role in Inner Areas, even if a comparison between the results of the Agricultural Censuses 1982- 2010 highlights a general decline in the Utilised Agricultural Area (UAA) and number of holdings and an increase in wooded lands. Table 1 shows the distribution of agricultural land, holdings and forests in all six classes identified by the Strategy. Table 1– Distribution of UAA and holdings in Centres and Inner Areas. Agricultura l holdings (n.) UAA - Utilized Agricultura l Area (ha) Forested area (ha) Agricul tural holding s (%) UAA (%) Forest ed area (%) UAA averag e (ha) Centres A - Single- municipality service centres 186,241 1,442,531 516,343 24.1 25.5 18.4 7.7 B - Multi- municipality service centres 48,695 265,107 181,276 6.3 4.7 6.5 5.4 C - Belt areas 537,506 3,942,653 2,107,700 69.6 69.8 75.1 7.3 Inner areas D - Intermediate areas 495,058 3,642,737 3,329,240 58.4 50.6 43.6 7.4 E - Remote areas 295,131 2,744,535 3,222,034 34.8 38.1 42.2 9.3 F - Ultra remote areas 58,192 817,474 1,084,743 6.9 11.3 14.2 14.0 Total 1,620,823 12,855,038 10,441,336 100 100 100 7.9 Total Centres 772,442 5,650,291 2,805,319 47.7 44.0 26.9 7.3 Total Inner Areas 848,381 7,204,747 7,636,017 52.3 56.0 73.1 8.5 Source: Agency for Territorial Cohesion; Agricultural Census 2010. IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 106 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas In terms of land area and number of holdings, agricultural activities seem to be more important in Inner Areas, where 56.0% of UAA and 52.3% of holdings are concentrated, mainly in Intermediate and Remote areas. In the Centres, UAA and holdings are concentrated mainly in Belt Areas (more than 69.0% of UAA and holdings in the Centres). As stated in another analysis (Osti, 2016), not all rural areas are marginalized and peri-urban areas could be associated with the idea of urban farming, the characteristics of which differ from the agricultural systems in remote areas, not included in the urban networks. According to the results of an analysis performed using the Italian Land Use Inventory (Marchetti et al., 2016), in 2008 almost 5.1 million hectares in Inner Areas were covered by arable land, 1.6 million by orchards, vineyards and nurseries, 1.5 million by natural grassland and pastures and 8.7 million by forests and other wooded lands. More than 70% of forests in Inner Areas are in protected areas (Carlucci and Lucatelli, 2013). Forests in Inner Areas give an important contribution to the richness of natural assets, being important not only for the production of timber but also for the provision of ecosystem services (natural landscapes, water resources, protected areas, etc.). DESCRIPTION OF FADN SAMPLE As previously stated the analysis of the economic characteristics of agricultural holdings in Inner Areas has been based on the elaboration of the Italian FADN (Farm Accountancy Data Network). FADN is a European system of sample surveys conducted every year to collect accountancy data from agricultural holdings, with the aim of monitoring the income and business activities of the EU agricultural system. FADN is the only source of microeconomic data based on harmonized bookkeeping IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 107 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas principles. In order to reflect the farming diversity and heterogeneity of FADN’s field of observation, the Liaison Agency (responsible for the FADN survey in each Member State) selects the stratified sample on the basis of three criteria: Region, Type of Farming and Economic Size. The Type of Farming is defined in terms of the relative importance of the different activities on the farm, measured as a proportion of each activity’s Standard Output on the farm’s total Standard Output 1. Each Type of Farming is further broken down into different types with a more accurate level of detail. Not all agricultural holdings are included in the FADN sample but just those which, due to their economic size, are considered as “commercial”. This threshold differs in the Member States: in Italy only holdings with a Standard Output equal to or greater than 8,000 € are taken into account. In this paper, all the holdings have been classified following the same criteria as that used for the Strategy for Inner Areas. The analysis is based on a 3-year period (2012, 2013 and 2014) and the source of data is the on-line FADN Database, where all the structural and economic results are gathered every year. Table 2 shows the distribution of holdings and UAA between Centres and Inner Areas. In the 3-year period, an average of 10,537 holdings per year have been surveyed by FADN. Similarly to what is stated in Table 1 on the basis of the Agricultural Census results, agricultural lands and holdings are more or less equally shared, given that 49.0% of holdings and 52.6% of UAA are located in Inner Areas. The largest part of holdings surveyed by FADN in 1 The Standard Output of an agricultural product (crop or livestock) is the average monetary value of the output at farm-gate price in euros per hectare or head of livestock. IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 108 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas Centres is concentrated in Belt Areas, while the survey in Inner Areas involves mainly Intermediate and Remote Areas. The average size is not very different: in the Centres it is equal to 32.3 hectares while in Inner Areas it rises to 37.3 hectares. Instead, the type of farm in which a forested area is combined with the agricultural one, is concentrated mainly in Inner Areas (69.3% of forested areas). Table 2 - Number of holdings and UAA of FADN sample in Centres and Inner Areas Agricultura l holdings (n.) UAA - Utilized Agricultura l Area (ha) Forested area (ha) Agricul tural holding s (%) UAA (%) Forest ed area (%) UAA averag e (ha) Centres A – Single- municipality service centres 1,278 46,945 3,012 23.8 27.0 31.3 36.7 B - Multi- municipality service centres 263 6,016 734 4.9 3.5 7.6 22.8 C - Belt areas 3,830 120,702 5,889 71.3 69.5 61.1 31.5 Total Centres 5,372 173,662 9,635 51.0 47.4 30.7 32.3 Inner areas D - Intermediate areas 3,149 103,444 11,797 61.0 53.7 54.2 32.9 E - Remote areas 1,678 69,494 8,499 32.5 36.0 39.1 41.4 F - Ultra remote areas 338 19,837 1,461 6.6 10.3 6.7 58.6 Total Inner Areas 5,165 192,775 21,757 49.0 52.6 69.3 37.3 Total 10,537 366,438 31,392 34.8 Source: Elaboration on the on-line FADN Database (2012-2014) As previously stated, every holding is classified in a different Type of Farming according to the value of Standard Output. Four Types of Farming are included in the analysis as the most representative in Inner Areas in terms of number of holdings and UAA: IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 109 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas • Specialist field crops: specialist cereals, oilseed and protection crops (COP), excluding rice • Specialist permanent crops: vineyards (quality wine) • Specialist permanent crops: fresh fruits (other than citrus) • Specialist grazing livestock: dairy sector (milk production). Table 3 shows number of holdings and their average size in Centres and Inner Areas for each of the five Italian macro-regions (NUTS level 1). Table 3 - Number of farms and average size in the selected Type of Farming per macro-region Specialist COP (other than rice) Specialist vineyards (Quality Wine) Specialist fresh fruits (other than citrus) Specialist dairy (milk) Centres Inner Areas Centres Inner Areas Centres Inner Areas Centres Inner Areas Number North-East 590 165 778 307 426 337 437 609 North-West 532 158 432 299 127 77 522 397 Central Italy 395 363 250 211 40 57 164 146 South Italy 157 558 271 193 160 177 156 487 Islands 18 61 37 78 9 38 94 76 UAA (ha) North-East 40.4 45.0 15.7 9.5 13.0 6.1 50.9 26.3 North-West 46.8 22.3 9.6 11.1 18.5 10.9 65.1 59.9 Central Italy 59.4 52.2 28.4 22.3 7.7 14.6 43.7 46.3 South Italy 37.0 42.4 15.3 11.9 11.7 8.2 40.2 27.9 Islands 37.8 61.0 31.5 55.8 6.3 12.8 42.4 56.2 Source: Italian on-line FADN Database (2012-2014) IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 110 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas ECONOMIC CHARACTERISTICS OF AGRICULTURAL HOLDINGS IN INNER AREAS The performance and profitability of the holdings is compared on the basis of the Balance Sheet elaboration, and in particular the Income Statement. The Income Statement (or Profit and Loss Statement) is one of the most important statements used by accountants in the analysis of the profitability of a holding or company during a given period (in general one year). It shows revenues, expenses, gains and losses incurred by the holding. The Income Statement format varies according to the complexity of the activities. In this paper, the scheme is the same as that provided by the Italian FADN: it takes into account revenues and expenses for primary and complementary activities, subsidies from the Common Agricultural Policy (1st and 2nd Pillar) or other sources (national and regional). The scheme starts from the Total Revenues and, by subtracting the different cost components, leads to the determination of the Net Income (or Net Loss). There are important accounting aggregates in the scheme that allow to make preliminary evaluations on the holding management (Table 4): • Total Revenues (TR): include the sale of goods and services, European subsidies and revenues from other gainful activities • Current Costs (CC): include the expenses for production inputs during the accounting year (seeds and seedlings, fertilizers, crop protection products, feedstuffs, etc.), other costs (processing, commercialization, general expenses) and farming overheads (insurance, veterinary expenses, etc.); • Added Value: is the gross profit, calculated as the difference between the TR and the CC, it gives initial information about the production results, before the deduction of structural and labour costs IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 111 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas • Net Income (NI): is the final result of the farm management and includes all the items coming from the whole activity (financial and extraordinary management, other public subsidies). Accounting aggregates are expressed in euro per hectare, except those related to the holdings specialized in milk production, calculated for every livestock unit (LSU; Total revenues, Current costs, Feedstuffs, Added Value and Net Income). LSU are calculated applying to the average number of animals reared in the farm, a coefficient related to the category of animal. Table 4: Economic results of different Types of Farming in Centres and Inner Areas (€/ha) Specialist COP (other than rice) Specialist vineyards (Quality Wine) Specialist fresh fruits (other than citrus) Specialist dairy (milk) Centres Inner Areas Centres Inner Areas Centres Inner Areas Centres Inner Areas Total revenues: €/ha €/LSU North-East 2,075 2,316 11,012 12,027 12,156 22,727 2,730 2,851 North-West 2,395 2,395 13,580 11,004 10,162 10,111 2,279 2,312 Central Italy 1,650 1,550 7,347 5,595 5,028 5,125 2,158 2,571 South Italy 1,873 1,490 5,123 5,973 8,170 6,132 2,206 2,150 Islands 1,047 1,190 3,974 4,000 6,108 4,135 2,465 1,920 Subsidies (EU and not EU; €/ha) North-East 395 414 237 302 585 1,232 669 781 North-West 451 480 491 482 638 603 825 725 Central Italy 408 461 397 381 268 350 465 400 South Italy 449 407 279 316 205 335 421 342 Islands 309 302 264 214 172 203 915 305 Other gainful activities (€/ha) North-East 66 169 303 478 253 598 135 189 North-West 57 18 262 507 21 386 153 422 Central Italy 96 55 764 183 11 237 225 425 IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 112 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas South Italy 70 34 104 50 26 113 37 49 Islands 0 85 0 13 7 12 2 1 Current Costs: €/ha €/LSU North-East 1,073 1,111 3,464 3,847 3,804 5,260 1,366 1,436 North-West 1,101 1,102 4,023 2,970 2,994 2,627 958 817 Central Italy 746 643 2,263 1,911 1,668 1,552 994 949 South Italy 737 647 1,440 1,496 2,423 1,787 1,016 911 Islands 497 535 958 901 1,861 1,528 1,100 784 Fertilizers and crop protection products (€/ha) North-East 354 370 806 848 1,380 1,494 197 68 North-West 350 278 793 702 967 791 159 58 Central Italy 221 181 386 339 602 233 314 99 South Italy 185 180 511 584 958 745 244 184 Islands 170 172 252 202 609 505 370 68 Feedstuffs (€/LSU) North-East - - - - - - 715 713 North-West - - - - - - 471 369 Central Italy - - - - - - 423 410 South Italy - - - - - - 553 432 Islands - - - - - - 613 380 Added Value (€/ha) €/LSU North-East 1,002 1,205 7,548 8,180 8,352 17,467 1,364 1,416 North-West 1,294 1,293 9,557 8,034 7,169 7,484 1,322 1,495 Central Italy 904 907 5,084 3,684 3,360 3,573 1,164 1,622 South Italy 1,136 843 3,684 4,478 5,747 4,345 1,190 1,239 Islands 549 654 3,016 3,099 4,247 2,606 1,366 1,136 Net Income (€/ha) €/LSU North-East 524 656 4,826 5,321 4,859 11,719 902 907 North-West 581 447 6,807 6,118 4,997 5,338 975 1,300 Central Italy 546 570 2,917 2,092 1,845 2,255 666 1,222 South Italy 762 615 2,084 3,256 3,277 2,345 744 840 Islands 465 355 1,885 1,804 2,011 1,275 1,063 801 Source: elaboration on Italian on-line FADN Database (2012-2014) IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 113 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas The economic performance of agricultural holdings in Inner Areas and Centres is not the same. The total revenues per hectare are, in general, lower in Inner Areas, pointing out the more difficult production and market conditions. The fresh fruit sector in North- East Italy is the exception: the high values of total revenues derive mainly from the apple production district of Trentino Alto Adige, characterized by high yields and an efficient market organization (Marongiu, 2013). A deeper analysis focused just on apple production highlights the greater competitiveness of holdings located in Inner Areas: average yield is 38.6 tons/ha (with peaks of more 60.0 tons/ha in Trentino Alto Adige) and gross margin per hectare is 14,187 €/ha. In the Centres, the yield is 33.3 tons/ha and gross margin is 10,856 €/ha. The production of quality wine is another important agricultural system in Inner Areas: 43.1% of UAA covered by vineyards for quality wine is located in these areas. Concerning the total revenues per hectare, values are similar in holdings located in South Italy and the Islands while in North-West and Central Italy, revenues are higher in Centres. Only in the North-East viticulture for quality wine seems to guarantee higher revenues in Inner Areas. In all cases, the structure of costs (in general higher in Centres) leads to a very competitive Net Income per hectare, highlighting the importance of this sector in the agricultural system of Inner Areas, in every macro-region considered in the analysis. Small variations in terms of total revenues per hectare are found in the holdings specialized in milk production: in every macro-region the value in Inner Areas is not so different from the Centres, except for the South of Italy, where the values are lower. Greatest differences are observed in the costs per livestock unit. Current costs, including feedstuffs, are in general lower in Inner Areas, in particular in the Islands, characterized by grazed pasture. The animal density (Table 5) is, in general, lower in Inner Areas, except for holdings in the IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 114 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas South of Italy, where animal density is quite similar (in particular, the value is influenced by the raising of buffaloes in Campania, in intensive farming systems). In terms of Net Income per livestock unit, the results show the competitiveness of holdings located in Inner Areas, which performance are similar or higher than those observed for the Centres. A low value of Net Income per LSU is calculated for Islands, where the different animal density in Inner Areas (2.0 LSU/ha) and in Centres (5.4 LSU/ha) reflects a different intensity of dairy systems. Another interesting point emerging from the analysis is the relative importance of the other gainful activities2 (OGA). In particular the share of these revenues on the total farm revenues is higher in the Inner Areas, especially in holdings specialized in fresh fruits and dairy farming (all the macro-regions). Holdings specialized in viticulture for quality wine have an important income from OGA in the Inner Areas of Northern Italy. This is an important parameter, especially in the context of income diversification, identified as one of the solutions proposed by the Strategy to revitalize the territories. Diversification can be explained on the basis of internal and external characteristics. External determinants are often linked to the location of the agricultural holding, which involves a different degree of rurality depending on the distance from urban centres. Studies have found that there is less diversification in less favoured areas but, at the same time, more service-related diversification (e.g. agri-tourism) in environmentally attractive locations (Sharpley and Vass, 2006), 2 Include all activities other than farm work, directly related to the holding and having an economic impact on the holding. In these activities, either the resources of the holding (area, buildings, machinery, agricultural produce, etc.) or the products of the holdings are used. IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 115 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas where the natural beauty of the landscape can enhance opportunities for diversification. According to some studies based on the Italian FADN (Dries et al., 2012), when a farm location is in the vicinity of an urban area, the likelihood of observing income diversification is positive while the effect is negative for agricultural, structural and environmental diversification. This is plausible, given that urbanization can pose constraints on a farmer willing to provide environmental services such as landscape protection and agri-environmental schemes. When a farm location is in a mountainous area, it seems that the likelihood of observing an income diversification strategy increases, in line with other analysis (Maye et al., 2009) emphasizing the importance of off- farm employment as a survival strategy in marginal areas. The governance of Inner Areas and implementation of the projects planned within the Strategy should consider this important element for integration wherever the presence of natural assets (water resources, agricultural systems, forests, natural landscapes), cultural resources and landscapes positively affects the diversification structure. Concerning the current costs per hectare, the values are in general lower for holdings located in Inner Areas, except for the fresh fruit sector of North-East Italy that, however, has a lower Cost Incidence (Table 5) than the holdings in Centres. The same applies to the cost for fertilizers and crop protection products: excluding the fruit sector, in almost all the macro-regions and Farm Types considered in the analysis, the value per hectare is lower in Inner Areas than in Centres, with important differences in the dairy sector. The Net Income per hectare, considered a measure of the farm performance and an index of land profitability, is similar in farms specialized in COP, while in vineyards for quality wine the results differ in the macro-regions: a higher land profitability in Inner Areas is observed in North-East and South Italy while the results IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 116 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas are similar in the Islands. The fresh fruit sector seems to be competitive in Inner Areas, especially in Central and Northern Italy. Concerning dairy systems, the land profitability in Inner Areas is lower than in Centres, in all the considered macro-regions. As stated before, more specific structural and economic indexes are summarized in Table 5. The value of the subsidies incidence (subsidies on the Net Income) is a little bit higher in the Inner Areas for holdings specialized in COP (where subsidies count for the half of Net Income), vineyards and fresh fruits in almost all the macro-regions. In the dairy sector, the incidence is particularly high in the Inner Areas of northern Italy, where an important part of subsidies are linked to all the nature-enhancing measures, easier to implement when the intensity of agricultural land use is low (agri- environmental measures, compensatory allowances for Less Favoured Areas, modulation, greening, etc.). In some cases the continuation of the traditional agricultural systems with a low-input impact depends heavily on this support (Strijker, 2004). As previously stated, the indexes related to land productivity and profitability are, in general, lower in the farms located in Inner Areas, in particular in the holdings specialized in milk production. As other indexes, holdings specialized in COP have similar values, showing an equality between Inner Areas and Centres. Differently from the profitability of land, the income per Annual Work Unit (labour profitability) of holdings specialized in COP is higher in the Inner Areas, except for the North-West. For vineyards, the highest value in the Inner Areas are observed only for the North-West and South Italy while the labour profitability in the fresh fruit sector has its highest value in the holdings of North-East. The income per AWU in the dairy sector of Inner Areas is lower than in the Centres in all the macro-regions (except Central Italy). Another important parameter is the labour cost per unit, which value is almost always lower in Inner Areas. IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 117 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas Table 5 – Structural and economic indexes of different Types of Farming in Centres and Inner Areas Specialist COP (other than rice) Specialist vineyards (Quality Wine) Specialist fresh fruits (other than citrus) Specialist dairy (milk) Centres Inner Areas Centres Inner Areas Centres Inner Areas Centres Inner Areas Livestock Density (LSU/UAA) North-East 4.4 2.8 North-West 3.7 2.6 Central Italy 5.7 3.1 South Italy 6.5 6.9 Islands 5.4 2.0 Subsidies incidence (EU and non-EU subsidies/Net Income; %) North-East 37.4 39.6 6.7 7.0 12.0 9.1 13.8 41.7 North-West 36.9 44.4 10.4 13.7 12.9 11.1 36.0 46.0 Central Italy 55.4 57.9 15.8 24.3 15.0 16.9 14.8 16.6 South Italy 44.8 54.4 11.0 11.1 5.1 10.2 11.3 13.7 Islands 60.7 54.0 12.3 13.2 4.7 16.6 17.1 21.2 Cost incidence (Current Costs/Total Revenues; %) North-East 52.7 51.3 36.3 36.5 36.2 26.3 50.6 52.6 North-West 47.7 48.8 32.4 32.1 29.7 28.6 43.4 37.3 Central Italy 46.0 43.9 35.9 40.5 50.2 34.6 48.5 37.3 South Italy 40.5 44.1 33.2 28.0 29.1 34.5 46.3 42.6 Islands 47.3 44.9 23.3 26.0 32.0 39.5 46.0 40.4 Gross land productivity (Gross Saleable Production/UAA; €/ha) North-East 2,008 2,148 10,706 11,549 11,903 22,126 10,984 7,194 North-West 2,337 2,378 13,318 10,490 10,141 9,725 8,069 5,135 Central Italy 1,549 1,494 6,491 5,372 5,018 4,885 9,930 6,358 South Italy 1,794 1,454 5,020 5,923 8,143 6,011 11,944 11,948 Islands 1,047 1,104 3,974 3,986 6,100 4,123 12,526 3,638 Net land profitability (Net Income/UAA; €/ha) North-East 524 656 4,826 5,321 4,859 11,719 3,756 2,273 North-West 581 447 6,807 6,118 4,997 5,338 3,433 2,761 Central Italy 546 570 2,917 2,092 1,845 2,255 2,752 2,996 IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 118 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas South Italy 762 615 2,084 3,256 3,277 2,345 4,192 4,164 Islands 465 355 1,885 1,804 2,011 1,275 5,225 1,338 Gross labour productivity (Gross Saleable Production/Annual Work Unit; €) North-East 67,817 75,547 51,608 46,543 51,089 60,218 118,717 67,357 North-West 78,079 46,700 49,301 49,917 61,699 45,883 111,988 72,645 Central Italy 58,119 54,748 47,499 36,164 22,148 25,872 96,103 90,680 South Italy 56,267 64,287 36,675 31,755 35,087 28,197 83,623 77,013 Islands 48,956 58,758 52,221 45,320 25,609 31,373 133,754 72,224 Net labour profitability (Net Income/Annual Work Unit; €) North-East 19,448 24,193 21,774 21,415 20,739 32,407 40,475 22,475 North-West 25,171 11,336 25,712 29,411 30,327 22,321 47,972 41,440 Central Italy 21,128 23,024 21,794 13,401 8,481 11,477 29,463 42,187 South Italy 24,341 28,454 14,506 17,561 13,885 11,713 26,525 27,948 Islands 20,971 22,074 27,821 19,702 10,569 9,536 54,550 28,538 Labour Cost per Unit (Labour Costs/Annual Work Units; €) North-East 3,861 4,916 5,483 4,535 7,478 7,796 8,006 4,605 North-West 4,442 3,174 4,563 4,325 6,446 4,981 6,345 4,549 Central Italy 4,797 4,022 7,615 5,029 4,049 4,254 6,724 4,947 South Italy 4,858 3,495 7,551 4,704 7,243 5,545 6,455 5,482 Islands 3,360 4,431 8,967 9,002 2,727 5,907 4,277 5,004 Source: elaboration on Italian on-line FADN Database (2012-2014) Conclusions The accounting data collected by the Italian FADN have been used for a number of analyses based on the assessment of the economic results of agricultural holdings. Each holding is georeferenced and this makes it possible to conduct territorial analyses based on specific spatial characteristics. In this paper, the classification set out in the National Strategy of Inner Areas has been applied to the FADN sample for the period 2012-2014 in order to compare the performance and profitability of four important Types of Farming IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 119 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas (COP, viticulture, fruit sector and dairy sector) in the five macro- regions corresponding to the Level 1 of Italian NUTS (North-East, North-West, Central Italy, South Italy and Islands). The comparison has been made on the basis of the Income Statement results. The economic performance of agricultural holdings in Inner Areas and Centres is not the same because of different farming techniques, production systems and market conditions. In general, in every macro-region, the profitability decreases from North to South and the difference in terms of costs and revenues per hectare is not the same in all the selected Types of Farming. The lowest differences between Inner Areas and Centres are observed in the holdings specialized in COP: revenues and costs per hectare are very similar and the values of the most important aggregates and indexes are comparable in all the macro-regions. It seems that the localization and the distance from the Centres has no influence on the economic performance and structure of this Type of Farming. On the contrary, in terms of Net Income per hectare, the holdings specialized in vineyards and fresh fruits located in Inner Areas have relatively good performances when compared to those in the Centres. This is observed in almost all the macro- regions, except the fresh fruit sector of South Italy and Islands, probably influenced by the exclusion of citrus, one of the most important cultivations in this area. The highest value is observed in the North-East, where the high specialization in areas suited to the production of apples has led to the improvement of the whole chain, ensuring high revenues for the holders, even in the case of high land fragmentation (Marongiu, 2013). Strategic projects based on already competitive agricultural systems and the strengthening between these and other sectors (in particular environment and tourism) have a great potential for the socio-economic growth of IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 120 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas Inner Areas and can became an important development opportunity. As concerns the dairy sector, the Net Income per LSU in Inner Areas is similar or higher than the values observed in the Centres but, in general, the net land profitability (Net Income per hectare) is lower. This is partially due to the more extensive dairy systems characterizing the Inner Areas, where the number of livestock units per hectare is low if compared to the Centers (except for holdings in South Italy). This means a different pressure on the ecosystem in intermediate and remote areas, mainly composed of grassland and permanent pastures, sometimes with a high level of biodiversity. In this case, the Strategy could be developed around interactions between the dairy sector and the environment, given the importance of this activity in the protection of biodiversity and preservation of specific ecosystems. The opportunities to create synergies between the agricultural sector and other activities is highlighted by the different incidence of other gainful activities on the total revenues. This percentage is higher in Inner Areas and this is partially due to rural livelihood diversification and the presence of important natural assets, cultural resources and landscapes positively affecting the diversification structure. With regard to this aspect, the project included in the Strategy should reinforce all the synergies in order to make the agricultural sector more attractive for youngsters and avoid the abandonment of farmland in marginal areas. Another piece of evidence emerging from the analysis is the different importance of public subsidies in the holdings located in Inner Areas. In some cases, as in the dairy sector in northern Italy, subsidies are very important, being linked to enhancing-nature measures and having a strong impact on the maintenance of low- input systems. Given the low profitability, the continuation of IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 121 Cesaro, Marongiu – Economic performance and profitability of agricultural holdings in inner areas traditional dairy systems in Inner Areas could depend strongly on this kind of subsidy. Inner Areas will be included in the next Rural Development Policy: the synergy between the Strategy for Inner Areas and the measures provided by the Rural Development Plans can guarantee a higher level of efficacy in the interventions. REFERENCES Barca, F., Casavola, P., Lucatelli, S. (2014). A strategy for Inner Areas in Italy: definition, objectives, tools and governance. Materiali UVAL, 31, 1-66. Carlucci, C. & Lucatelli, S. (2013). Aree interne: un potenziale per la crescita economica del Paese. Agriregionieuropa, 9(34), 17-20. Dries, L., Pascucci, S., Gardebroek C. (2012) Diversification in Italian farm systems: are farmers using interlinked strategies? NewMedit, 4, 7-15. 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Agricultural income in less favoured areas of the EC: a regional approach. Journal of Rural Studies, 11(2), 217-228. DOI: https://doi.org/10.1016/0743-0167(95)00012-C Strijker, D. (2005). Marginal lands in Europe – causes of decline. Basic and Applied Ecology, 6, 99-106. DOI: https://doi.org/10.1016/j.baae.2005.01.001 SHORT AUTHOR BIOGRAPHY: The authors are researchers in the Unit of Policy and Bioeconomy of the Council for Agricultural Research and Agricultural Economics Analysis (CREA). They are involved in the survey and data analysis of Italian FADN and in agricultural and forestry policies. IJPP – Italian Journal of Planning Practice Vol. VII, issue 1 - 2017 124 https://doi.org/10.1016/0743-0167(95)00012-C https://doi.org/10.1016/j.baae.2005.01.001 Economic performance and profitability of agricultural holdings in Inner Areas