We investigate income risk for Swedish farmers and the effects of introducing EU’s income stabilisation tool (IST) using a unique data set allowing us to compare results when using different income definitions. Risk is measured, respectively, by the probability of losing 30 percent of the average income during the three preceding years (IL30) and by the coefficient of variation (CV).
Results are highly sensitive to the definition of income. Using gross value added, the probability of an IL30 varies between 25 and 45 percent per year during the period 2004-2015, which is similar to other Swedish small scale enterprises. It then falls to between 15 and 25 percent when using individual income. Similarly, the CV for gross value added is 1.34 and falls to 0.46 for individual income. The IST would reduce the CV to 1.07 for gross value added and to 0.40 for individual income. As to costs, using gross value added, the annual public costs for the IST is € 146.8 million and the farmer’s premium € 1 712. With individual income, the annual public costs fall to € 28.5 million and the farmer’s premium to € 412. The results suggest that the Swedish tax system provides ample possibilities to reduce the income risk and that little would be gained by incorporating the IST in the Swedish rural development programme.