Impact of the Structure of Agricultural Production to the Financial Health of Farms

KOPTA DANIEL: Impact of the structure of agricultural production to the fi nancial health of farms. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 2013, LXI, No. 7, pp. 2317–2325 The fi rst part of the paper deals with the infl uence of individual commodities on the profi tability and risks of farms. Production structure was given thought share of twelve basic crops in total agricultural production yield. Volume of accumulated profi t for fi ve-year income was chosen as viability criterion. The research did not show that specialization in one of the commodities had signifi cantly infl uenced achieved profi tability. The only exception is the production of milk, which clearly lead to lower profi tability. Production structure determined the risk of farms. Farms were constantly threatened by both negative profi tability, and also steep fl uctuations of cash fl ow (in other of long-term positive profi tability), leading to temporary loss of solvency. The analysis showed that diff erent types of production structures lead to diff erent 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 fi nds itself under the point of termination of production) was calculated using the EaR method. The results again supported previous fi ndings. 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. fi nancial health, risk, profi tability, structure of production, agricultural fi rms An assessment of farms is a part of a long-term project (MSM 6007665806) of the Department of Accounting and Finance at the University of South Bohemia in České Budějovice in cooperation with the Agrarian Chamber. The results revealed that to interpret the number of economic processes, it is not satisfactory to have standard fi nancial statements only, but it is necessary to analyze the operation data on commodity production. A questionnaire on production structure with calculation of the most important commodities is a part of the research. The importance of the data has also been revealed in relation to a research of possible dangers and risks to farms. This paper analyses a relation of profi tability and risks of production structure. • The fi rst aim of the paper is determine how the production structure of farms infl uences their profi tability and risks. • The second aim of the paper is to calculate the profi tability and risk of commodities and what are the causes of production risks. Risk is not defi ned very clearly in the fi nancial theory. One approach defi nes risk as ignorance of future events (Knight, 2002). The second approach divides the concepts of uncertainty (the inability to estimate future outcomes) and risk (quantifi able possibility that actual results will diff er from expected) (Valach, 2011). The paper assumes the possibility of quantifying risk and therefore is based on the concept of the second approach. A number of risk assessment methods were extended at the end of eighties of the 20th century. The Value at Risk (VaR) method seemed to be one of the most progressive methods at that time (Chavas, 2004). Currently, the possibilities of use of the method are discussed, especially in relation to the fi nancial crisis. However, the method still provides