How opportunity costs change the view on the viability of farms? Empirical evidence from the EU

Abstract

The post-2020 Common Agricultural Policy targets at supporting small and medium-sized farms. Capping and redistribution of direct payments would have a direct impact on the economic viability of farms. Calculation of economic income is a reasonable way how to calculate the economic viability of firms. However, accounting profit has been preferred for its estimation so far. The article aims to compare the income from accounting and economic point of view and reveal how much the results differ across the EU. The literature review, an empirical analysis based on Farm Accountancy Data Network (2016–2018), and a clustered heat map were applied. The results provide clear evidence of high variability of opportunity costs when calculating the economic viability in the EU, especially between countries with small intensive farms and some post-communist countries where larger farms dominate.

Assessing the Economic Viability of Agricultural Holdings with the Inclusion of Opportunity Costs

“…The FADN database in the Czech Republic [21] was used for this paper. The data set was used for the five-year time series from 2016 to 2020 as the economic viability should be analyzed as a multiannual average [14].…”

“…These models were built mainly for large corporate firms; they cannot be used to adequately value the cost of land owned, and therefore are not suitable for agricultural holdings. However, even for determining the viability of agricultural holdings, some authors [4,5,[14][15][16] do not value land owned and use the value of the total property owned. In contrast, other studies [13,17] use an equity capital valuation approach after deducting the value of agricultural land.…”

Conversion to Organic Farming: Does it Change the Economic and Environmental Performance of Fruit Farms?

“…Following the existing literature (e.g., Spicka and Derenik, 2021;Gómez-Limón et al, 2023), farms can be considered economically viable only when they achieve a level of income that is enough to cover all farm operating costs while also ensuring an appropriate return to production 3). For the first one, named long-term viability (LT_VB), the FNI of each farm is divided by its total opportunity costs (i.e., land, labor, and non-land assets).…”

Optimization of the capital structure of an agricultural company in the Czech Republic

“…The effects of changes in personal income tax rates and discount rates are also examined. The calculation of economic income is a reasonable way to calculate the requirements for economic viability [23]. Zeshan [24] argues that the WACC variable is selected as a dependent variable, while the Quality of Corporate Governance (QCG) variable was used as an independent variable.…”