Management practices and the financial performance of farms

Abstract

Purpose

Farm businesses in England are under pressure to intensify production sustainably while managing costs and meeting market demands. Commodity prices and support from Common Agricultural Policy (CAP) payments are important determinants of profitability. With the United Kingdom (UK) leaving the European Union (EU), revised policy will see farming more exposed to fluctuating commodity prices and financial support from Government more focused on encouraging environmental land management. The research reported here, investigated whether business management practices of farmers influences financial performance, and how policy could be tailored to better meet the needs of farm businesses.

Design/methodology/approach

Regression models were estimated for 862 Cereals, Dairy and Livestock farms in England using official data for 2011–2012, in order to assess whether different farm characteristics, business management practices (identified from a systematic review of 102 studies), knowledge acquisition indicators and manager experience had an effect on four different financial performance ratios. The financial performance of the top 25% of the sample was also compared to the bottom 25% in terms of use of business management practices.

Findings

The results show that business planning and benchmarking had a positive, statistically significant, effect on financial performance, as do business size and knowledge acquisition, albeit to a lesser extent.

Originality/value

The research reported here is the most extensive examination, to date, of the impact of management practices on the financial performance of farms. Thus, it sends strong policy recommendations.

Citation

Vanhuyse, F., Bailey, A. and Tranter, R. (2021), "Management practices and the financial performance of farms", Agricultural Finance Review, Vol. 81 No. 3, pp. 415-429. https://doi.org/10.1108/AFR-08-2020-0126