Decomposing Dynamics in the Farm Profitability: An Application of Index Decomposition Analysis to Lithuanian FADN Sample

Abstract

The changes in farm structure have been observed in Lithuania as well as in other Central and Eastern European countries. These changes, to a high extent, have been driven by decreasing profitability of the small farms. In this paper, we look into the changes in the profitability of Lithuanian family farms across different farm size groups. Farm size is measured in terms of the standard output. The period covered is 2005–2016. The index decomposition analysis model and Shapley value are adapted for the analysis. The proposed framework ensures complete decomposition among other desirable properties. The decomposition of the changes in profitability was carried out following the DuPont identity. The results suggest that for small (respectively large) farms the asset turnover (respectively profit margin) component appear more important, whereas the leverage effect remained minimal irrespectively of the farm size group.

European benchmarking of determinants of profitability for companies with accrual accounting in the agricultural sector

“…Higher financial leverage increases Austria's RoE in particular. This strong impact of the financing policy for agricultural profitability is in line with other studies (Mijic and Jaksic 2017;Balezentis et al 2019). The interest rates of Belgium, Germany and Poland differ significantly from Austria, causing a further advantage for the Austrian RoE by more than 1%.…”

“…There seems to be great potential for improvement in this field for Czech firms, especially as other countries, such as France, Austria or Belgium, have even lower capital tie-up than Poland. This general importance of a low capital tie-up confirms the results of other studies (Katchova and Enlow 2013;Mijic and Jaksic 2017;Balezentis et al 2019;Gołaś 2020).…”

“…Further, determinants of profitability have been subject to comparative analyses and benchmarking within the agricultural sector (Wilson et al 2005) and other businesses (Katchova and Enlow 2013). Using a multiplicative index decomposition model, Balezentis et al (2019) explained changes in the RoE of Lithuanian farms over time, based on elements of the DuPont identity.…”

Investment activity of Serbian farms comparing to neighboring countries: Application of FADN indicators

“…liberalisation and establishment of market economy has been led to certain level of agricultural development. But, after the several countries from that region accessed to EU, there still lefts the characteristic common to majority of farms -their relatively small size (Baležentis et al, 2019). Typically, farms from observed countries (Serbia, Croatia, Bulgaria, Romania, and Hungary) are facing almost similar issues, lagging far behind to EU averages related to farm's production, investment, market and other elements.…”

Economic Viability by Farm Size of Estonian Family Farms

“…2018). Income discrepancies between farms can originate from different degrees of productivity, labour use, different levels of economies of scale, or different access to credit markets and to extension services (Baležentis et al, 2019). However, compared to large farms, small farms might appear inefficient for modern agriculture, although they offer an important share of total agricultural employment and play an important economic role in rural areas.…”