Abstract
This paper addresses the development of farm businesses in Sweden, 20002007, with regard to their specialization in single farm enterprises, diversified agricultural production and diversification with new income-generating ventures. Furthermore, regression analysis is used to study the impact of farm characteristics on the observed specialization and diversification. The study is based a panel data set of about 900 farms participating in the Swedish Agricultural Economics Survey. Results show that farms are increasingly engaging in diversified activities, though in most firms these activities make only minor contributions to total revenue. Results also show that the degrees of specialization and diversification are influenced by characteristics of firms business structure, financial and demographic conditions. These results contribute to the understanding of farm business development, as well as show the need for policy makers and farm advisors to consider the differences between farms pursuing different development strategies in their efforts to influence behavior.;
Highlights
Small firms are recognized as important engines in local economies (Davidsson et al 1999), and the establishment of competitive rural businesses is a major goal both in the European Union Rural Development Program 2007 – 2013 and in the SwedishRural Development Program 2007 – 2013
Similar conclusions were made by McNally (2001), suggesting that diversification is triggered by a need to improve financial conditions rather than strong financial conditions stimulating diversification: Using Brockhaus’ (1980) terminology, one might say that firms are initially pushed into diversification by the unfavorable economic conditions, rather than pulled by opportunity
In support of hypothesis H:F3, results show that economic returns from forestry in a previous year is positively associated with both types of diversification outside traditional agriculture, indicating that farmers may be funding diversification with internally generated resources
Summary
Small firms are recognized as important engines in local economies (Davidsson et al 1999), and the establishment of competitive rural businesses is a major goal both in the European Union Rural Development Program 2007 – 2013 and in the Swedish. The focus in this study lies in tracing development patterns over time and in exploring how the characteristics of a farm business, such as business structure, financial conditions and demographic characteristics, influence strategic choices of single-venture specialization and diversification within and outside of conventional agricultural activities. These assumptions support a rationale for specialization, where the focused use of resources can lead to gains from economies of scale and other competitive advantages (Porter, 1985) This underlying view of the management behavior in farm firms together with the given dataset provides a basis for formulating a set of hypotheses that propose the influence of specific factors of business structure, financial conditions and demographic characteristics on firms’ specialization and diversification within- and outside agriculture. Along withare notes on whether or not the hypotheses are accepted
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