Assessing Economic Resilience: the case of Alpine dairy farms in Northern Italy

Mountain farms face significant challenges, primarily stemming from their limited capacity to expand their herds and capitalize on economies of scale (MacDonald et al. 2000). Additionally, the demanding workload and elevated production costs, attributed to the steep terrain and high altitudes, further compound their difficulties (Lips 2014). Consequently, their economic circumstances often worse compared to those of dairy farms in lowland areas (EC 2008), compelling mountain farmers to make difficult choices between abandoning or intensifying milk production (MacDonald et al. 2000). Therefore, these unique requirements necessitate a comprehensive study on the economic resilience of farms situated in mountainous regions. The primary objective of this study investigates the economic resilience of Northern Italian dairy farms, through the analysis of financial ratios assessing the current economic conditions. Thus, this research aims to assess the significance and relevance of financial ratios in determining the profitability, financial stability, and operational efficiency of enterprises. The study endeavors to explore how the analysis of financial ratios can empower dairy farmers to improve their financial management skills in the context of mountain regions with greater efficiency. For the purpose of assessing the financial sustainability, a set of financial economic indicators are calculated. This research adopts secondary quantitative data gathered in the dataset RICA and limited to dairy firms in Nothern Italy. The target group comprises 1.149 dairy farms in Lombardy, Piedmont and Veneto regions of Italy. The dataset used to perform this analysis, "Rilevazione sulle Istituzioni e sulle Comunità Agricole," is a comprehensive agricultural census database maintained by Italy's National Institute of Statistics (Istat). It provides detailed information on farm characteristics, land use, livestock, and socioeconomic aspects, serving as a critical resource for agricultural analysis and policymaking in Italy. We compare three measures of farm financial weighted performance-profitability, solvency and liquidity during the period 2015-2021. The ratio analysis is an important technique for analyzing financial statements and trends of business growth and can help in predicting the management performance to meet expected targets. Therefore, financial ratios are used as a tool at formulating a diagnosis relative to the situation of the financial performance of the companies in the subset. The economic assessment will involve calculating key financial indicators such as Return on Investment (ROI) and Break-Even Analysis. These metrics will be used to measure the economic performance and stability of mountain dairy farms. The research will also incorporate a review of existing literature on Alpine dairy farming, economic sustainability, and related subject to offer a comprehensive recommendations and insights that can contribute to the enhanced economic sustainability of Alpine dairy farms. In conclusion, this study aims to provide a comprehensive evaluation of the economic resiliency and sustainability of Alpine dairy farms in Northern Italy, revealing challenges they face and offering insights to ensure their continued viability in the face of evolving economic and environmental circumstances. The findings of this research will be valuable for farmers, policymakers, and stakeholders concerned with the future of Alpine dairy farming in the region.