Integration in the agricultural sector of the economy and instruments for its support

Abstract

A 3,2% decline in agricultural output in comparable prices combined with a rise in the cost of borrowed financing has sharpened the question of which organisational forms and budgetary support instruments keep the return on sectoral capital within positive values. The coexistence of fragmented producers that lose part of their value added at distribution and supply links and vertically integrated entities that close the technological chain generates divergent interpretations of what should be regarded as the primary source of the integration effect. The aim of the study is a quantitative separation of the contribution of organisational consolidation and the contribution of support instruments to the resulting efficiency of agrarian capital. Using an author's computational model of two entities with an identical production profile, ratio and factor analysis were performed, and scenario discounting under different support configurations was carried out on a model investment project. The calculation showed that the transition from market coordination to integration raises the return on assets by 5.41 percentage points, of which about 6.14 points are provided by a higher return on sales, while a slowdown in asset turnover subtracts 0.74 points. Scenario modelling of the investment project yielded a negative net present value under commercial financing and a positive one under a combination of a concessional loan and compensation of capital expenditure, with the result most sensitive to the selling price rather than to the support rate. The obtained relationship indicates that support instruments lower the entry threshold of an investment project but do not neutralise the price risk, which remains decisive for the stability of an integrated entity.