Profitability and financial performance of European Union farms: An analysis at both regional and national levels

Abstract

AbstractAgriculture has always been a sector with several specificities that call for adjusted interventions from public institutions through agricultural policies. This is not an exception for the context in the European Union where the Common Agricultural Policy has had more impact in some contexts than the national agricultural policies of the member-states. In turn, the profit margins are, in general, narrow and this needs specific financial and economic management. However, the financial, economic instruments, and indicators for farming are, often, ignored, or at least, not sufficiently analysed. From this perspective, the main objective of this study is to assess the net working capital framework across European Union countries and regions, including assessments through types of farming and economic size. Another objective is to analyse the impacts from financial indicators (current ratio, current assets-to-total assets ratio, current liabilities-to-total assets ratio, and debt-to-total assets ratio) on profitability (return on assets) and financial performance (return on equity). For this purpose, data from the Farm Accountancy Data Network were considered, for the period 2004–2018. These data were worked through descriptive analysis, spatial autocorrelation approaches, and panel data regressions. As main conclusions, it is worth noting the diversity of financial realities across the European farming sector and the null impacts from the liquidity ratio on the farms’ performance.