Impact of the structure of agricultural production to the financial health of farms

Abstract

The first part of the paper deals with the influence of individual commodities on the profitability and risks of farms. Production structure was given thought share of twelve basic crops in total agricultural production yield. Volume of accumulated profit for five-year income was chosen as viability criterion. The research did not show that specialization in one of the commodities had significantly influenced achieved profitability. The only exception is the production of milk, which clearly lead to lower profitability. Production structure determined the risk of farms. Farms were constantly threatened by both negative profitability, and also steep fluctuations of cash flow (in other of long-term positive profitability), leading to temporary loss of solvency. The analysis showed that different types of production structures lead to different types of threats. The probability of falling into production losses, or that the loss is so great that not even cover variable costs (a farm finds itself under the point of termination of production) was calculated using the EaR method. The results again supported previous findings. Loss is highly likely to be achieved in commodities of animal production. For commodities of crop production the probability of loss was roughly a half, but the probability of exceeding a period of variable costs is higher.