Income stabilization tool (IST)
A CAP mutual fund that compensates a farmer when income falls more than 20% or 30% below its average, whatever the cause; the tool has existed since 2014 but has hardly ever been put into practice.
The income stabilization tool is a mutual fund that compensates a farmer when income falls sharply below its average, whatever the cause: prices, costs or yield. It first appears in Article 39 of Regulation (EU) 1305/2013 on rural development. Back then, the drop had to exceed 30% of average annual income over the three previous years, or of the five-year Olympic average. The Omnibus Regulation 2017/2393, in force on January 1, 2018, created a sector-specific IST (Article 39a) triggered at 20%, and allowed the use of indexes. The fund pays at most 70% of the income loss, and public aid finances part of it. Article 76 of Regulation (EU) 2021/2115 carries it into 2023-2027. On paper, it is the broadest tool in the CAP. In practice, it has barely been used. Italy opened it for a few sectors, dairy among them; a simulation on 167 dairy farms in a Veneto cooperative, published in 2018, served as a test bed. The difficulty is actuarial. Income depends on prices, and a price drop hits the whole sector in the same year: the fund runs dry just when everyone files a claim. Income also has to be measured, which requires reliable accounts that many small farms lack. For an underwriter, the IST looks more like a public mutual than insurance, and no private market carries this price risk without state reinsurance. Not to be confused with US revenue protection, which insures the revenue from one crop, not the farm's income.
Textbook case: a dairy farmer in a sector-specific IST has a three-year reference income of 60,000 euros. A year of collapsed milk prices cuts it to 42,000 euros, a 30% drop. The fund pays him 70% of the 18,000 euros lost, or 12,600 euros. The fund's other 400 members file claims the same year, and the fund has to call on public aid to pay.
income stabilization tool, IST, sector-specific IST, EU farm income stabilization fund
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