How limiting is finance for Dutch dairy farms? A dynamic profit analysis

Accessibility to financial resources is considered a prevalent problem in the agricultural sector. We develop an approach to quantify the long‐term opportunity costs of financial constraints in relation to peers who do not face any financial constraints. Using data on past financial performance, we...

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Bibliographic Details
Published inJournal of agricultural economics Vol. 75; no. 1; pp. 382 - 403
Main Authors Lamkowsky, Melina, Meuwissen, Miranda P. M., Meulen, Harold A. B., Ang, Frederic
Format Journal Article
LanguageEnglish
Published Oxford Wiley Subscription Services, Inc 01.02.2024
Subjects
Access
Accessibility
Agricultural economics
Agricultural industry
Agriculture
Bank loans
Constraints
Dairy farming
Dairy farms
Data envelopment analysis
efficiency
farm management
Farmers
Farms
Finance
finance and credit
Financial performance
Financing
Netherlands
Opportunity costs
Peers
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Summary:Accessibility to financial resources is considered a prevalent problem in the agricultural sector. We develop an approach to quantify the long‐term opportunity costs of financial constraints in relation to peers who do not face any financial constraints. Using data on past financial performance, we assess creditworthiness and the size of an additional accessible bank loan to farmers. Combining this with data on reported expenditure, we determine the accessible finance. We quantify the opportunity cost as the forgone dynamic profit (intertemporal profit in current‐value terms) from financial constraints. Using data envelopment analysis, we apply our approach to 264 specialised Dutch dairy farms for the years 2006–2017 and explore the potential impact of changes in finance provision for several scenarios. Our results show an increasing gap between frontrunners and other farmers, as the latter generate progressively less dynamic profit in comparison to their best peers. The gap between the dynamic profit of the average farm and that of its best peers from their production and investment decisions made over the span of 1 year grew from €40,040 in 2009 to €114,548 in 2017. However, the growth is not driven by insufficient access to finance. Financial constraints can only explain 6% of the forgone dynamic profit in 2009 and as little as 1% for 2017. The number of farms classified as financially constrained in comparison to their peers decreases in our sample from 44% in 2009 to 8% in 2017. This suggests that non‐financial factors are driving the growing gap.
ISSN:0021-857X
1477-9552
DOI:10.1111/1477-9552.12562