Holúbek, Ivan

Rábek, Tomáš

Tóth, Marián

Čierna, Zuzana

Research Institute of Agricultural Economics

PROFITABILITY AND RISK OF CROP AND ANIMAL PRODUCTION IN SLOVAK FARMSIng. Marián Tóth, PhD.Ing. Tomáš Rábek, PhD.Ing. Ivan Holúbek, PhD.Ing. Zuzana Čierna, PhD.  tel. 004137/641 41 60tomas.rabek@uniag.sk03. 10. 20162Contens Introduction Material and Methods Structure of Slovak Agriculture Impact of integration and globalization on the performance of farms in Slovakia Conclusion03. 10. 20163IntruductionAgriculture is a sector facing particularly large risks, resulting mainly from natural factors outside the control of farmers.The paper focuses on profitability and risk of crop and animal production based on an analysis of farms operating in Slovak Republic in two periods: 2004-2008 and 2010-2014.  The paper shows how farms with large UAA contribute in different extent to rural development and employment based on the production focus03. 10. 20164Material The data used for the analysis are from the database of Ministry of Agriculture and Rural Development of the Slovak Republic, over the period 2004 – 2014.  In the analyses we used more than 874 farms(cooperatives, companies) in each researched year. In the sample were used only “legal entities”, witch cover 80% of agricultural land in Slovakia. For our analysis, data were selected according to the production orientation to the subset of crop farmsand animal farms. The selecting criterion was the share of animal production based on sales03. 10. 20165METHODSThe modified Markowitz portfolio theory approach was used to estimates the total risk of eight portfolios:One for all farms and seven based on share of animal production ranging from 0 to 100%.We considered return on equity ROE to be equivalent to the return on stocks, generally used in the case of quoted companies. Measuring volatility of return in the Markowitz portfolio theory is based on the average return over the observed period for each investment03. 10. 20166Average return on equity EROEiWhere ROEi is return on equity of farm “i”, di is a weight of ROEi over the observed period (5 years, di = 0.20).Expected portfolio return = EROEi, where wi is an individual weight of i-farm (farm`s equity) in a portfolio (total equity of all  farms) and n is number of farms.03. 10. 2016EquityersSharesholdTaxesAfterEarningsROEi iti iidROEEROE    1  ni iipwEROEEROE17The portfolio risk (σp)The portfolio risk (𝝈𝒑) is determined by three variables: weight of the individual investment in portfolio (wi), standard deviation of the individual investment - individual risk (σi), and covariance, relation between the ROEi and ROEj (σij)03. 10. 2016  ni jjiiijEROEROEEROEROEn 1))((1∑ =σ11 σ12 σ13 … σ1kσ21 σ22 σ23 … σ2kσ31 σ32 σ33 … σ3k⋯σk1 σk2 σk3 … σkk     nininj ijjiiipwww1 1 122 8Structure of Slovak Agriculture03. 10. 2016Table 1. UAA per farm as a percentage of total area Years Category of the Utilized Agricultural Area 0-5 ha 5-10 ha 10-50 ha 50-100 ha 100-250 ha 250-500 ha over 500 ha 2010 0.99 0.94 3.43 2.91 6.8 7.91 77.74 2011 0.99 0.95 3.75 2.95 6.42 8.20 76.75 2012 0.99 0.98 3.97 2.94 6.60 8.28 76.24 2013 1,01 1,04 4,23 2,97 7,04 8,21 75,49 2014 1,04 1,09 4,52 3,1 7,07 8,55 74,64 Source: Data of the Agricultural Paying Agency of Slovakia (2015). Nowadays, the majority of UAA (74.64% in 2014) is cultivated by large farms with over 500 hectares, while the UAA per farm in the EU is much lower. 9Size structure of Slovak farms03. 10. 2016IndexLegal form2010 2014Change (%)Land (ha)Share on all land(%)Land per farmShare on all farms (%)Joint stock company109 119 9,17% 13272,01 0,7% 1 113,21 0,67Cooperative579 566 -2,25% 691 054,33 36,7% 1 220,94 3,2Small –family farm9020 9 785 8,48% 53 291,14 2,8% 5,45 55,26Ltd. 1310 1 968 50,23% 687 429,45 36,5% 349,3 11,11Farmers 4774 5 046 5,70% 303 866,73 16,1% 60,22 28,5Other 146 160 9,59% 12,383 0,0% n.a. 0,97Total 15938 17 708 11,11% 1 883 220,05 100,0% n.a. 100Number of farms UAA 201410Impact of integration and globalization on the performance of farms in Slovakia03. 10. 2016 More hectares means more financial support Farmers are since 2004 continually decreasing the animal production in favour of crop production. EU subsidies are decoupled from production which means they are not production linked. Farmers are not motivated to produce and the intensity of support is increasing.  Subsidies per sales and per hectare increased after adopting CAP 11Characteristics of Slovak farms03. 10. 20162004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Subsidies per ha 123 184 205 238 267 289 323 298 280 271 272Hectares per employee 24,6 26,8 27,9 29,0 30,7 31,7 34,6 37,4 40,2 40,7 35,2Share of animal production57,8%54,6%53,9%52,8%49,4%50,5%46,7%44,0%40,2%39,6%41,0%Number of farms 1285 1410 1364 1364 1317 1382 1304 1412 1480 1483 1490Income per hectare 21,7 -1,0 8,2 41,4 31,4 -68,0 -7,8 52,2 21,9 -13,0 40,8Income per employee 534 -26 229 1201 962 -2154 -271 1955 880 -529 1435Subsidies on total sales (%)18,1%25,4%27,9%31,1%32,6%34,5%50,8%43,8%34,3%31,1%32,2% more financial support decreasing the animal production Subsidies per sales and per hectare increased12Situation in agriculture in period 2004-200803. 10. 20162004-2008 All farmsShare of animal production on total production0 0-20 20-40 40-60 60-80 80-100 100Average profitability (ROE) 1,83% 6,47% 9,48% 2,53% 1,14% 0,08% 2,05% -7,18%Risk 1,21% 4,21% 5,70% 1,47% 1,80% 1,10% 0,39% 9,51%Share on number of farms 100,00% 15,22% 10,41% 13,84% 17,96% 17,62% 21,17% 3,78%Number of farms 874 133 91 121 157 154 185 33Subsidies per ha 240,69 203,76 206,2 209,19 220,95 255,82 298,73 315,23Hectares per employee 28,7 31,04 50,3 31,08 25,78 26,63 27,8 21,8Income per hectare 26,36 83,54 53,99 31,49 17,81 8,89 28,83 -86,08Income per employee 756,45 2593,14 2715,78 978,93 459,13 236,71 801,33-1876,83Subsidies on total sales (%) 0,3 0,22 0,4 0,25 0,24 0,32 0,49 0,23Sales per employee 22665,47 29032,3 26045,8 25767,6 23846,0 21010,5 17017,2 30294,413Situation in agriculture in period 2010-201403. 10. 20162010-2014 All farmsShare of animal production on total production0 0-20 20-40 40-60 60-80 80-100 100Average profitability (ROE) 1,60% 7,33% 2,76% 1,70% 1,32% -1,14% -0,26% 0,18%Risk 1,95% 4,92% 5,31% 2,81% 4,34% 1,58% 0,97% 1,77%Share on number of farms 100,00% 21,04% 16,70% 14,10% 13,45% 11,71% 16,49% 6,51%Number of farms 922 194 154 130 124 108 152 60Subsidies per ha 288,86 220,36 247,17 270,3 293,26 323,62 364,72 371,1Hectares per employee 39,75 58,7 55,26 39,06 33,36 35,24 34,27 31,76Income per hectare 26,24 120,47 40,22 33,56 -6,4 -10,69 5,11 10,43Income per employee 1043,2 7071,07 2222,36 1310,83 -213,43 -376,62 174,96 331,4Subsidies on total sales (%) 0,34 0,22 0,35 0,29 0,32 0,42 0,5 0,46Sales per employee 33309,5 59526,2 38559,9 36307,5 30267,1 27150,0 24994,6 25413,714Average profitability of farms based on the share of animal production on totalproduction03. 10. 2016-10,00%-8,00%-6,00%-4,00%-2,00%0,00%2,00%4,00%6,00%8,00%10,00%12,00%0 0-20 20-40 40-60 60-80 80-100 100Share of animal production on total production2010-2014 2004-200815Risk of farms based on the share of animal production on total production03. 10. 20160,00%1,00%2,00%3,00%4,00%5,00%6,00%7,00%8,00%9,00%10,00%0 0-20 20-40 40-60 60-80 80-100 100Share of animal production on total production2010-2014 2004-200816Share of farms based on the share of animal production on total number of farms03. 10. 20160,00%5,00%10,00%15,00%20,00%25,00%0 0-20 20-40 40-60 60-80 80-100 100Share of animal production on total production2010-2014 2004-20081703. 10. 2016Sales per employee based on the share of animal production on total production 0100002000030000400005000060000700000 0-20 20-40 40-60 60-80 80-100 100Share of animal production on total production2010-2014 2004-200818CONCLUSION In 2004 Slovakia joined the EU. The agricultural market became a part of the EU agricultural market. Farms in Slovakia are large when compared to EU average.  We observed the structural changes in production and farms based on the integration and globalization.  Based on the results we conclude the productivity of farms did increase. 03. 10. 201619CONCLUSION Crop farms are more productive than animal farms.  Profitability of farms differs based on the share of animal production.  The most profitable farms have „0“ share of animal production.  Mixed farms with share of animal production from 60-80% are generating loss.  In the long run, crop farms are profitable and profit from crop production is used to cover the losses from animal production in mixed farms. 03. 10. 201620CONCLUSION The most profitable farms are the most risky. Generally the animal production is considered to be less risky when compared to crop production.03. 10. 201621Partial results of „VEGA“ projects:This paper has been prepared within the projects: 1/0912/14 “Common Agricultural Policy from 2014 to 2020 and its impact on the financial situation of farms in Slovak Republic” 1/0796/14 „Transmission mechanism of CAP instruments and their impact on the financial situation of farms“03. 10. 2016Thanks for Attention03. 10. 2016

Profitability and risk of crop and animal production in Slovak farms

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Profitability and risk of crop and animal production in Slovak farms

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