The investment behaviour of dairy farms in transition economies

ABSTRACT

This article investigates dairy farm investment behaviour and the presence of soft budget constraints in the dairy farms of Baltic and Central European transition countries – Estonia, Hungary and Slovenia – using individual dairy farm accountancy panel data for the years 2007–2015. The empirical results confirm that gross dairy farm investment is positively associated with gross dairy farm investment for the previous year for financially unconstrained dairy farms, and negatively for financially constrained dairy farms. It is also positively associated with public investment subsidies, and, except for Slovenia, with growth in real sales for financially unconstrained dairy farms. Mixed results are found for gross dairy farm investment squared and cash flow variables. A particularly significant negative cash flow regression coefficient implies significant soft budget constraints for financially unconstrained Estonian and Slovenian dairy farms, while insignificant cash flow regression coefficients imply weak soft budget constraints for financially unconstrained Hungarian dairy farms.

KEYWORDS:

• Dairy farm investment behaviour
• soft budget constraint
• investment subsidy
• Euler equation
• Baltic and Central Europe

JEL CLASSIFICATIONS:

• D22
• G31
• H25
• Q12
• Q14

Acknowledgements

This study was supported by funding received from the Hungarian and Slovenian Research Agencies in the form of a joint research project within Project N5-0094 – Impacts of agricultural policy on the regional adjustment in agriculture: A Hungarian-Slovenian comparison. The authors gratefully acknowledge useful suggestions and comments made by Oleg Nivievskyi, the associate editor in charge of this paper, and the two anonymous journal reviewers.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by ARRS - Javna agencija za raziskovalno dejavnost Republike Slovenije = Slovenian Research Agency [grant number: N5-0094]; NKFIH - Nemzeti Kutatási Fejlesztési és Innovációs Hivatal = National Research Development and Innovation Office [grant number: 128855].

Notes on contributors

Imre Fertő

Imre Fertő (PhD) is the General Director of the Centre for Economic and Regional Studies in Budapest, and Professor at Hungarian Agricultural and Life Sciences University, Hungary. He holds a PhD in economics from the Hungarian Academy of Sciences, and a PhD in agricultural economics from the Newcastle University. His research focuses on international trade, investment behaviour, production efficiency and short food chains.

Štefan Bojnec

Štefan Bojnec (PhD) is Professor of Economics and Head of Department of Economics at the Faculty of Management, University of Primorska, Koper, Slovenia. He has published extensively on different aspects of economics, business, management and sustainable development in world-leading journals.

József Fogarasi

József Fogarasi (PhD) is Professor of Economics at the Faculty of Economics and Social Sciences, Partium Christian University, Oradea, Romania and at the Keleti Károly Faculty of Business and Management, Óbuda University, Budapest, Hungary. His research works covers the fields of production economics, natural resource economics and financial economics.

Ants Hannes Viira

Ants-Hannes Viira (PhD) is the Director of the Institute of Economics and Social Sciences at the Estonian University of Life Sciences in Tartu, Estonia. His research focuses on the dairy supply chain, agricultural economics and policy, and socioeconomics.