EFFICIENCY OF THE USE OF ASSETS IN THE FARMS OF KURZEME PENINSULA IN LATVIA

Abstract

The paper summarises the results of research on the efficiency of managing assets in farms of the Kurzeme peninsula in Latvia. The research presented the results on the asset structure. The calculations included several indicators, e.g. output values compared to the total asset value. To reflect the polarity of the results, data on groups of farms whose economic indicators differ sharply were used, namely those whose economic size is from 4 – 8 units of economic volume (UEV) for small farms and from 40 to 250 UEV for large farms. Based on the research results, it can be concluded that the group of small farms does not exhibit significant changes in the output volume over the analysed period, but the group of large farms shows development trends because both the output value and the total asset value have grown. In addition, the purchase price of products or current assets was evaluated, putting emphasis on the analysis of the prices of grains and milk.
The analysis of the prices of grains, which reflects the current assets of farms, including the opportunity for the asset increase, led to a conclusion that the prices are stable but the price in the industry rose in 2007. In its turn, the price of milk has fluctuated over the respective period.
The second component of the analysis – the value of assets – has significantly increased during the recent years. Such a divergence in processes explains a phenomenon shown in Table 1 that the output value estimated per LVL 1 of the total value of assets has not increased, but even substantially decreased during the recent years. In these enterprises and companies, the long-term investments (assets) have strongly grown, and the output value has also risen. At the end of the analysed period, the output of any large agricultural enterprise was 25 times that of any small farm. With a recession strengthening by the end of 2008 and in the beginning of 2009, the milk market shrank as the purchasing power of population significantly decreased and sales of cheese and other milk products tumbled. The low purchase prices of milk, to a great extent, are determined by the very fragmented milk processing industry in Latvia because many small milk processors spend a lot of funds for self-maintenance, which could be paid to milk suppliers. The total cost of intermediate consumption has more than doubled over the analysed 5 years, which could essentially impact profitability unless such a sharp increase in costs is synchronically followed by an increase in prices of key agricultural products or an increase in financial support from the government and the EU. In the group of medium farms, the increase rate sharply rose and the net incomes, in absolute terms, tripled during the first four years, but in the last year of the analysed period – sharply decreased again.