MODELS OF RESERVES AND RESULTS IN INDIVIDUAL AGRICULTURAL FARMS

Mirosław Wasilewski
Department of Economics and Rural Farms' Organization, Warsaw Agricultural University, Poland

ABSTRACT

In the paper, common relationships among agricultural income, final production and reserves of agricultural and non-agricultural products were defined in individual agricultural farms. Only 31% of the variability of agricultural income in individual farms was explained by the variability of average values of non-agricultural products´ reserves, which is a rather small relationship. The increase of agricultural lands appeared with the growing value of reserves altogether. At the same time, the increase in value of plant and animal production by 1 PLN was associated with a very similar increase in the general value of reserves, a bit higher in plant production. The variability of cereal reserves was explained by the cereal reserves at the beginning of the year, the area of cereal growing, the number of large cattle and pigs´ units and the average cereal crop. Moreover, the variability of potato reserves was explained by potato reserves at the beginning of the year, the potato crop and area of potato growing as well as the number of work-hours which family members and their guests had spent on farm labor. The variability of final gross production per 1 hectare of agricultural land (AL) was explained by the value of agricultural machines and tools, the expenses of plant and animal production, the average state of agricultural reserves, the average state of non-agricultural reserves and an average cereal crop.

Key words: econometrics models, reserves in individual farms.

INTRODUCTION

The implementation of a market economy caused the need to search for effective solutions as a result of growing competitiveness. It concerns especially agriculture and agribusiness, and particularly - private agricultural farms. The group of these farms is distinguished by no use of accountancy information systems, because they simply have not carried it. As a result of agricultural concentration and its seasonal character, one of the sources of searching for higher effectiveness of management is rationalization of reserve management. In a free-market economy, reserves´ structure and level in agricultural farms seem very important. First, they impact the effectiveness of management by the amount of the costs of storage. Second, they especially impact safety of on agricultural farm activity [10]. Optimal level of reserves depends on numerous factors. Generally, it can be claimed that the amount of reserves depends on the level of economic activity (scale of production, sale and purchase) as well as the level of reserves from the previous year [11].

The aim of the research was to define mutual dependences among agricultural income, final production and reserves of agricultural and non-agricultural products in private agricultural farms. The research was conducted on 95 private farms, situated in the middle-west region according to The Institute of Agricultural and Food Economics (IAFE) rationalization system, which consists of wielkopolskie and kujawsko-pomorskie voivodships. The middle-west macroregion is distinguished by high, on a national scale, level of organizational and technical features of agriculture. The farms, which are situated in the macroregion, carry highly intensive production and organization and - what is the most essential component according to the results of accountancy - high production and economic results [14]. The farms included in this research were chosen because they had continuously been keeping agricultural accounting records during the years 1997-2000. The analysis included farms larger than 15 ha AL. In the subject´s bibliography, some examples of models of agricultural income depending on global production, defined by exponential function, can be found [13]. It was not possible to apply these models into the research because within the 95 private farms were some which were operating at a loss. Due to this fact, to explain incomes´ development, linear models were used. Justification of the choice is confirmed by the following words of Czerwinski [2]: "In general, choice of the model´s form does not depend on any specific, defined or accepted by everyone rules. Theory does usually not bring appropriate arguments and preliminary empirical data analysis seldom let to accept definitely one form of a model, and to reject other (...). This exactly allows explaining the fact, that econometrists frequently use linear models in their research."

For each year included in the research, individual models, which define reserves formation and their impact on agricultural income value in private farms, were built and analysed. Moreover, factors influencing reserves´ development in a fundamental way were defined. Econometric models were used to describe the amount of final products and means of production´s reserves as well as to define their level´s impact on the economics of the farms´ activity. The importance of these types of models is emphasised both by practitioners and theoreticians of logistics management [7,8,9,12].

Explanatory (independent) variables were chosen in two stages. At the first stage, on the basis of information on analysed relationships, potential explanatory variables were set. The main reason for deciding on the choice of variables was their substantive value, according to the aim of the research. At the second stage, reduction of the explanatory variables set was made, taking into consideration statistical criteria. While the models were under construction, 215 characteristics of the farms were available. There are numerous statistical criteria of explanatory variables´ from which to choose for econometric models. However, the methods do not always lead to the same result, i.e. to a choice of the same set of explanatory variables. In the research, a step regression was mainly used; this method is often recommended for practical uses [1,3]. In questionable cases, several statistically correct models were analysed and finally, one, the most appropriate to the aims of the research model was chosen. In each of the analysed models, odd objects were sought. For this reason, on the basis of studentized residuals, the odd forms were found [3,6]. Finally, after the analysis, if these farms were really odd with reference to the rest of population, some of them were eliminated [4].

The models, which were built on the basis of empirical data in particular years, differ from each other not only by the values of parameters estimation, but sometimes also by a set of independent variables. Apart from the same set of potential explanatory variables for the particular dependent variable, a model fulfilling statistical requirements was chosen independently for every year. The parameters estimations of models describing formation of a particular variable, estimated on the basis of different years, were directly compared to each other, mainly in the case of the same sets of explanatory variables. The aim of the process was to define the explanatory variables by a particular dependent variable which would concern all years in the analysed period. It should be emphasised that the value of the estimated parameter depends not only on the independent variable, but also on other variables, not considered in the model, which are substitutes for the particular independent variable as well as the dependent variable [5]. The evaluation of a parameter defines an average increase of the dependent variable per unit of increase of a particular explanatory variable, after elimination of impact of other independent variables in the model.

RESULTS OF THE RESEARCH

In practical econometrics, in models which describe relationships of agricultural incomes in agricultural farms, the value of global production is considered within explanatory variables [13]. This production consists of plant and animal production. Due to this fact, in the case of defining factors which impact on agricultural income in farms, the categories of this production ought to be treated as explanatory variables. The research conducted on a macroeconomics scale showed that farmers´ incomes depend on the scale of agricultural production and the difference between the process of production realization and the sum of prices of means for production, modified due to agricultural production fluctuations in comparison to long-standing trends [13]. In the analysis of agricultural income changes, in comparison to the farm´s reserves, agricultural income models with a wider set of variables were used. Table 1 shows the models of agricultural income within 1997-2000. In this period, in all years, a very essential relation distinguished the following variables: "value of plant production" and "value of animal production". In the 1999´s model, in comparison to the rest of the years, there was no such variable as "average value of agricultural reserves" because of the lack of statistical significance, even on the level of 0.10. However, the "average value of non-agricultural reserves" variable was statistically significant in the model, and appeared also in the model of 1997. The variability of agricultural income in the farms was explained in 1998 - up to 66%, and in 2000 - up to 69%, by the value of plant production, value of animal production and average value of agricultural reserves. Moreover, in 1997 about 78% of agricultural incomes´ variability was explained by the value of plant and animal production as well as the average value of agricultural and non-agricultural reserves. At the same time, in 1999 the variability of agricultural income was explained by the value of plant and animal production and the average value of non-agricultural reserves. The increase of plant production´s value by 1 PLN caused growth of an agricultural income - the largest in 1998 (on average by 0.54 PLN) and the lowest in 1999 (on average by 0.34 PLN). The increase of animal production by 1 PLN also caused growth of the farms´ agricultural income - but on the smallest scale. The increase of animal production by 1 PLN involved growth of an agricultural income by only 0.12 PLN in 1998, and the largest growth appeared in 1997 (by 0.32 PLN). It can be claimed that the value of plant production had a larger impact on explaining an agricultural income´s changes.

In all the analysed years, reserves influenced negatively agricultural income changes. The increase of the average value of agricultural products´ reserves by 1 PLN was accompanied by a decrease of an agricultural income - the largest fall appeared in 1998 (by 0.51 PLN), so it was significant. The smallest decrease took place in 2000 and amounted to 0.28 PLN. In 1997, the growth of reserves´ value by 1 PLN caused the fall of an agricultural income by 0.39 PLN, while in the model there was an additional variable - "average value of non-agricultural products´ reserves". A disadvantageous impact of growth of this sort of reserves by 1 PLN on an agricultural income in 1997 and 1999 was similar and amounted to 0.84 PLN and 0.90 PLN. In conclusion, the reserves negatively influenced agricultural income. The case of a decrease in agricultural income while the value of reserves increased should be explained, because in the formulae of an agricultural income´s calculation, the growth of reserves´ value always increases agricultural income. In the models concerning agricultural income, on the particular level of plant and animal production, there were some additional expenses on the reserves, which caused a decrease of this income.

Table 2 shows models describing the relationship between value of reserves altogether and these variables, which explained their level in the best way. Within the years 1997-2000, about 80-86% of the variability of the reserves´ total value was explained by the variability of agricultural land area as well as plant and animal production. On the basis of the parameters´ estimation, the relationship can be found. When an area of agricultural land increased by 1 ha, and the value of plant and animal production did not change, the growth of value of reserves altogether appeared - the largest in 1998 (on average by 491.47 PLN), and the lowest in 1999 (on average by 306.25 PLN). Consequently, the impact of agricultural land area on the level of reserves altogether was very different in particular years. The growth of values of plant and animal production by 1 PLN was accompanied by a similar increase of value of reserves altogether. The value of reserves altogether was explained by categories mentioned above, to the largest extent in 1997, when increase of values of plant and animal production caused growth of the value of reserves by 0.32 PLN and 0.25 PLN. In other years, this relation was a bit lighter, but stayed on a similar level.

All the researched farms in all analysed years had cereal reserves at the end of the year, which dominated the structure of crops (table 3). The coefficients of determination indicate that the variability of reserves of cereals at the end of the year was explained up to 97% in 1997 and up to 86% in 2000 of the cereal reserves at the beginning of the year, area of cereal growing and average cereal crop. In addition, in 1999 about 89% of the variability of reserves of cereals at the end of the year depended on changes of cereal reserves at the beginning of the year, an area of cereal crops, a number of large units of cattle and pigs as well as the average cereal crop. In the estimated models, an increase of cereal reserves at the beginning of the year by 1 kg, while the area of cereal crops and average cereal crops did not change, caused, in the analysed farms, a growth of cereal reserves at the end of the year - the largest in 1997 by 1.53 kg, and the lowest in 1998 - by only 0.15 kg. Similarly, the increase of cereal crops´ area by 1 ha caused the growth of cereal reserves at the end of the year on average by 2410.40 kg in 1998 and by only 710.81 kg in 2000, when other explanatory variables in the model stayed at the same level. The increase of cereal crops by 1 dt/ha caused similar growth in the amount of cereal reserves at the end of the year in 1998 and 1999 (on average by 733-773 kg), whereas this growth was the lowest in 1997, amounting to 372.89 kg. Due to the fact that the set of independent variables in 1999´s model, in comparison to the models from the other years, was supplemented by the variable "number of large units of cattle and pigs in the end of the year", the parameter´s estimations, which were estimated on the basis of the data from 1999, were interpreted separately. Consequently, if the state of animal stock increased by 1 large unit of cattle and pigs, cereal reserves at the end of the year would increase on average by 375.26 kg, when the rest of explanatory variables in the model stayed at the same level.

The models built for years 1997-1998, concerning the reserves of potatoes, are similar both in regard to the level of the dependent variable´s variability explanation and the set of independent variables and values of parameters estimations (table 4). In these models, the variability of potato reserves at the end of the year was explained in 63% in 2000 and 88% in 1997 by potato reserves at the beginning of the year, the potato crop and the area of potato crops. In 1999 there was one additional variable in the model: "a number of work-hours of family members and their guests spent on farm works". The parameter´s estimations show that the increase of potato reserves at the beginning of the year by 1 dt was accompanied by similar growth of potato reserves at the end of the year, on average by 0.5 dt in 1997-1998, and in the largest extent - in 2000 (by 0.74 dt), when the levels of potato crops and potato crops´ area did not change. The increase of potato crops by 1 dt/ha caused the growth of potato reserves at the end of the year on average from 0.13 dt in 1997 to 0.22 dt in 2000. While the area of potato crops increased by 1 ha, the amount of potato reserves at the end of the year increased on average in the largest extent in 1998 (by 32.84 dt), and the lowest - in 1997 (by 6.88 dt).

The model, estimated on the basis of data from 1999 in comparison to the other years, contains a bit different set of independent variables. In this model, 76% of the variability of potato reserves at the end of 1999 depended on potato reserves at the beginning of the year, the potato crop and its production area, as well as the number of work-hours in the farm. With the growth of work expenses in the farm by 1 man-hour, potato reserves at the end of the year increased on average by 0.73 kg, when the levels of potato reserves at the end of the year, the potato crop and the area of potato growing did not change.

In table 5 the models of final gross production were shown. All variables included in the models were presented per 1 ha AL or per 1 ha of the plant´s growing area. To describe the formation of production, an exponential function is recommended [5,13]. The variability of the final gross production per 1 ha AL was explained from 85% in 1997 to 71% in 2000 by the value of agricultural machines and tools, expenses on plant production without non-commercial products, expenses on animal production without non-commercial products, the average value of agricultural products reserves (with rotary livestock), the average value of non-agricultural products´ reserves and the average cereal crop. The values of the parameters estimations indicates that the increase of value of agricultural machines and tools by 1% caused growth of final gross production on average by 0.13-0.15% in years 1997, 1999 and 2000, and by 0.10% in 1998, after elimination of the impact of expenses on plant production without non-commercial products, expenses on animal production without non-commercial products, the average value of agricultural reserves, the average value of non-agricultural reserves and the average cereal crop. In addition, the growth of the value of expenses on plant production without non-commercial products per 1 ha AL by 1% was accompanied by an increase in final gross production per 1 ha AL, on average by about 0.32-0.33% in 1997 and 1998, and in the largest extent - by 0.49% in 2000. Furthermore, the increase of value of expenses on animal production (without non-commercial products) by 1% was accompanied by the growth of final gross production - in the lowest extent in 2000 (by 0.28%), and the largest - in 1997 (by 0.52%), when other explanatory variables did not change.

The growth of the average value of agricultural products reserves by 1% caused a decrease of final gross production on average by 0.26% in 1997, and in the lowest extent, in 2000 (by 0.12%). When the growth of the average value of non-agricultural products reserves by 1% appeared, the final gross production increased on average by 0.06% in 1997 and 2000, and in the largest extent - in 1999 (by 0.09%). The increase of average cereal crops by 1% was accompanied by the growth of final gross production in the largest extent in 1998 (on average by 0.42%), whereas in 2000 it increased only by 0.16% (when the other variables in the model did not change).

CONCLUSION

In the paper, mutual relationships among agricultural income, final production and reserves of agricultural and non-agricultural products were defined. On the basis of the research, the following conclusions were made:

1. Only from 17% in 1997 to 31% in 2000 of agricultural incomes´ variability in private farms was explained based upon the variability of reserves of non-agricultural products. It is a rather small relationship, but the growing level of the coefficient of determination suggests an increase in importance of this category of reserves in private farms´ agricultural income changes. When agricultural land area increased by 1 ha, it was accompanied by an increase of value of reserves altogether - in the largest extent in 1998 (on average by 491.47 PLN). At the same time, the growth of value of plant and animal production by 1 PLN caused a very similar increase of value of reserves altogether, a bit greater in the case of plant production.

2. Variability of cereal reserves was explained up to 86% in 2000 by cereal reserves at the beginning of the year, the area of cereal growing and the average cereal crop. However, in 1999 about 89% of the cereal reserves´ variability depended on the variability of cereal reserves at the beginning of the year, the area of cereal growing, the number of large units of cattle and pigs as well as the average cereal crop. If in analysed farms in 1999 the livestock had been increased by 1 large unit of cattle and pigs, the cereal reserves at the end of the year would have increased on average by 375.26 kg. Variability of potato reserves up to 88% in 1997 was explained by the potato reserves at the beginning of the year, the potato crop and the area of potato growing. In addition, in 1999 it was explained by the number of work-hours that family members and their guests spent on working on the farm.

3. Variability of final gross production per 1 ha AL was explained up to 85% in 1999 by the value of agricultural machines and tools, the expenses on plant and animal production, the average value of agricultural and non-agricultural products´ reserves and the average cereal crop. The increase of the average value of agricultural products´ reserves by 1% caused a decrease in final gross production in the lowest extent in 2000 - on average by 0.12%. If in the analysed farms the average value of non-agricultural products´ reserves had increased by 1%, the final gross production would have increased in the largest extent in 1999 by 0.09%. The growth of average cereal crops by 1% caused an increase in final gross production in the largest extent in 1998 (on average by 0.42%, whereas in 2000 only by 0.16%.

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