Determinants of farm profitability in the EU regions. Does farm size matter?

Farms in the European Union come in a wide variety of sizes and the effect of farm size on profitability (return on assets – ROA) has not been sufficiently investigated. The principal goal of this paper, therefore, is to study the determinants of farm profitability using the panels of the Farm Accou...

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Bibliographic Details
Published in:Agricultural economics (Praha) 2021-01, Vol.67 (3), p.90-100
Main Authors: Kryszak, Łukasz, Guth, Marta, Czyżewski, Bazyli
Format: Article
Language:English
Subjects:
Agricultural economics
Agricultural policy
Agricultural subsidies
Common Agricultural Policy
Determinants
dynamic panel models
Economics
farm accountancy data network (fadn)
farm finance
Farm management
Farms
Financial management
Impact analysis
large farms
Method of moments
Profitability
Return on assets
return on assets (roa)
small farms
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Summary:Farms in the European Union come in a wide variety of sizes and the effect of farm size on profitability (return on assets – ROA) has not been sufficiently investigated. The principal goal of this paper, therefore, is to study the determinants of farm profitability using the panels of the Farm Accountancy Data Network (FADN) on farms of different economic size between 2007 and 2018. We use a profitability function based on ratios that show the production and financial management strategies used by the farms. We also analyse the impact of subsidies under the Common Agricultural Policy (CAP). To deal with endogeneity, we run dynamic panel models using the system generalised method of moments (sys-GMM) estimators. We highlight the important role of the high level of equity turnover. An increase in production relative to the farm's equity plays a crucial role in the growth of profitability for all groups of farms, but it is especially important for smaller entities. In addition, farm managers should control the level of debt since the debt-to-asset ratio is a highly significant negative determinant of farm profitability in most of the groups. The increase in subsidy rate generally translates into higher ROA, but this variable has a negative impact across the largest holdings.
ISSN:0139-570X
1805-9295
DOI:10.17221/415/2020-AGRICECON