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.
Highlights
The increasing complexity of the agricultural policies and the role of the agricultural sector in the sense of viability of the rural areas have fuelled the need for integrated assessment frameworks for the agricultural sustainability [1,2,3,4]
This paper proposed a framework for decomposition of the farm profitability with particular focus on the farm size
The case of Lithuania was considered as an instance of the agricultural sector facing transformations following post-communist transformations and European Union (EU) Common Agricultural Policy (CAP)
Summary
The increasing complexity of the agricultural policies and the role of the agricultural sector in the sense of viability of the rural areas have fuelled the need for integrated assessment frameworks for the agricultural sustainability [1,2,3,4]. Profitability level and its dynamics can be further considered as the key factors of economic sustainability. Among multiple functions of the agricultural sector, the economic one is essential for maintaining its viability. In this regard, the measurement of income and profitability becomes a focal point in analysing performance of the agricultural sector [7]. Income level can indicate whether the farmers can sustain by embarking on the agricultural activities, whereas profitability indicates the attractiveness of investing into agricultural activities or, possibly, diverting investments into the other sectors. It is important to measure the income and profitability of agricultural business. The links between farm profitability and size demand further attention in the presence of structural dynamics
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