Examining the cooperation skills of agricultural producers among young farmers

ABSTRACT

This study examines the role family businesses play in the national economy, rural economy, as well as the competitiveness of areas lagging behind. Most family businesses can be classified as micro-enterprises, and have an extremely important role in strengthening the economy of their regions. Today, however, first-generation entrepreneurs are facing a very significant problem, namely the issues of generation change and succession. The fact that a considerable number of family-owned businesses do not outlive the “first generation” has been confirmed by numerous foreign studies, thus succession has become one of the most significant problems in recent years. The issue of succession is closely linked to cooperation skills, i.e., the existence or lack of cooperation between enterprises. In this study I examine the farmers’ experiences of integration, and the reasons why they are not involved in cooperation.

Introduction

In many rural areas of Hungary, there are unfavourable trends which have a negative impact on the competitiveness of rural areas and local development processes. Therefore, it is of utmost importance to create a vision that focuses on the values of rural life and to identify local potentials that support it with all indicators (Tóth et al., 2017).

Agricultural renewal prevents lagging behind, ensures development and gives an advantage. But it also requires continuity: someone has to work the land, harvest the crops, look after the animals and run the farm. However, handing over businesses, the family farms to successors is not resolved. With a shrinking population, this is not the most popular career option for people in their 20s. It is clear that a successful generational transition is essential to create and sustain a competitive agricultural sector. This is also confirmed by co-authors Szinay and Zöldréti (2020), who state that “the way to improve the competitiveness and competitive position of the country is through improving the competitiveness of enterprises and among them, agricultural enterprises. If we succeed in improving the utilisation of the most important resource for businesses, human resources, and in particular the utilisation of talent, we will have already taken an important step forward.” Lentner (2007) also points out in his study that knowledge, human capital and its health are essential prerequisites for remaining competitive; generational change in agriculture is therefore of particular importance.

There is no tradition of farm transfer in Hungary at the moment, but the issue of generational change is an increasingly pressing issue in Hungarian agriculture. This has been recognised by the Government, and for this reason the Ministry of Agriculture is preparing a new draft bill to ensure the successful and smooth transfer of family farms and agricultural enterprises.

The new generation can bring a change of mentality towards existing problems such as the low level of cooperation between farmers and their refusal to participate in integration(s). They can improve attitudes towards innovation and accept the sacrifice of today for a better tomorrow.

Is there cooperation, and in what form, among today’s farmers, or are they carrying on historical traditions of rejecting any relationships of integration? The question rightfully arises as to whether or not Hungarian farmers are prepared to take advantage of these benefits, and if not, why not? In close connection with the previous question, it is necessary to look at the problem of generational change as an indispensable factor for development.

The aim of my research is to test these assumptions, and based on the results of the research to suggest possible ways for future measures.

Generational change  as a prerequisite for long-term sustainable development

The steady increase in the average age of farmers in the agricultural sector has been investigated and confirmed in several studies (Szentesi, 2015; Túróczi, 2014). It is a fact that young people’s openness to change is higher than that observed for older age groups. Acknowledging the work of professionals currently running agribusinesses, we look at the factors that justify the generation change.

First of all, we should mention high average age, which Szentesi (2015) writes about in his article. By looking at the happenings of the past decades, we can see that from the 1990s to the present day a system has been built up, which system is constantly changing and evolving. The direction of change has been positive, with a shift in the concentration of factors of production, yields, and an increase in the efficiency of the use of assets. In the course of these positive changes, a significant number of farmers have reached a farm size that requires significant investment – hundreds of millions, sometimes billions of forints – to maintain and improve.

The scale of the developments is important for a number of reasons in dealing with the topic.

• The purchase of larger capacity equipment, the establishment of crop storage facilities, processing plants, etc. requires higher investment; therefore, joint investments are more likely to be realised.
• For higher capacity machinery, the costs per unit of production are generally lower, so failure to make investments will create a competitive disadvantage. Investment is essential for long-term sustainable development.
• Investment needs require some form of integration of production, storage and processing of crops, precisely in order to take advantage of the resources created.
• Grants awarded for investment through tenders usually require long-term maintenance over time. The maintenance obligation requires long-term cooperation and long-term stability of leadership.
• Efficiency, creditworthiness and plant size are key elements of business evaluation criteria, and subjective elements also appear in the final decision as regards leadership stability.

The issue of business valuation is also a significant factor in the life of agricultural businesses, and is of particular importance for a merger, the sale of a company, tender evaluation or borrowing. According to Túróczi (2014), efficiency, creditworthiness and farm size are key elements of the business valuation criteria.

Based on the above considerations, it can be concluded that cooperation and long-term leadership stability are necessary for business development and market perception. This justifies the need to integrate a younger generation into the agricultural sector, alongside the current management, to work with the older staff over a number of years and ensure continuity. Szentesi notes that the older generation is not refusing innovation anymore and neither is the resistance to integration of 20 years ago present.

The circumstances urge innovative thinking, the conditions are right for development and there is a willingness to do so. There are no obstacles to the development of the agricultural sector in this respect.

Cooperation in the agri-food sector

In research on agricultural competitiveness, the role and importance of cooperation and collaboration are among the highlighted factors. Many authors, such as Kornai (1983), Artner (1995), Elster, (1997), Király (2011.), Agárdi (2004), Högberg (1997), Szabó G. (2011), Bíró-Rácz (2015) and Nábrádi (2018) have dealt with the definition and classification of cooperation. AKI’s (Institute of Agricultural Economics) 2015 research summarises the different ways of classifying cooperation according to different criteria in Table 1.

Table 1: Classification of economic cooperation

Source: Bíró-Rácz (2015): Agrár- és vidékfejlesztési együttműködések Magyarországon [Cooperation in agriculture and rural development in Hungary]. AKI. pp. 10.

According to Artner (1995), cooperation is now inevitable for enterprises that want to grow. Modern machinery has high capacities and provides excellent services, and correspondingly it is also expensive. If a farmer cannot take advantage of this – for example, he does not have enough land -, then buying it will tend to put him at a competitive disadvantage. However, if he does not take advantage of the services machinery provides in some way, he will also be at a competitive disadvantage.

The content-based grouping of cooperation has been defined in a more fundamental and thoughtful way, based on different criteria, in Nábrádi (2018). He formed ten groups, which he used to classify the characteristics of cooperation: differences and similarities.

Integration is a factor of competitiveness, but we must also bear in mind that different types of integration can be mutually exclusive. The lesson learnt from the research is that businesses, and hence agribusiness operators, need to operate effectively in an ever-changing environment.

My aim was to examine whether there is cooperation among young farmers or whether they are as dismissive as their predecessors? I looked at the form of cooperation they choose, the benefits they see in cooperation and the length of time they consider most acceptable for participation.

Characteristics of the sample included in the research

The analysis was based on a detailed questionnaire survey. A total of 161 evaluable responses were obtained from the sample, making the sample size suitable for drawing conclusions, testing hypotheses and generalisation. In terms of demographic characteristics, the sample can be characterised by the distributions detailed below. An analysis of the distribution of respondents by economic form reveals that almost half of the sample (45%) are small farmers, 24% are partnerships, 20% are sole proprietors and 5% are family farmers or primary producers. 6% categorised themselves into other categories. This shows that producers are not always aware of the organisational framework of farming.

In terms of size, the vast majority of respondents are micro enterprises (91.3%), 8.1% are small enterprises and only 0.6% are medium-sized enterprises. The age distribution of respondents follows a much more even distribution. The proportion of each age group within the sample is roughly evenly distributed around 15-25% – except for the youngest age group: 18-25-year-olds account for 1%. The largest proportion of respondents are aged 65+ (24%), but the 35-44-year-old size category is also of similar size (24%). The proportion of entrepreneurs under 35, considered as the young age group, totals 16% of the sample. The sample roughly confirms the KSH (HCSO) finding that the proportion of under-35s engaged in agricultural activity is low, while the proportion of over-65s, for example, is high (31%).

Analysis

Integration/Cooperation

Next, I examined producers’ experiences of integration, what their reasons are for staying away from cooperation.

44% of respondents do not participate in any integration, most often because they feel they do not need it (13% of all respondents) or because they already have established distribution channels (12% of all respondents). Lack of trust was marked by only 8%, while 8% had bad experience with such integrations and only 2% chose lack of information.

Multiple options from the list could be ticked. Those who did not need the integration and its services were mostly those who already had an established sales channel. Also, we noticed that if someone had bad experience, they were more likely to mark lack of trust, as well (Figure 1).

Figure 1: Reasons for not participating in integrations

Source: Author’s own compilation based on research data

56% of respondents are involved in some form of integration. The majority of these, 40%, are involved in a producer group, 8% in a producer and sales organisation and another 8% in both of the previous two categories. Respondents did not chose cooperatives as a possibility for integration, most probably because producer cooperatives are basically less common in the county. Participants in integration also ranked the importance of the services available within the integration framework. Provision of product takeover was ranked as the most important. This is followed by favourable development of prices, and then closely by pre-financing of production requirements. Most respondents ranked professional consultation last (Figure 2).

Figure 2. Ranking of services received in integration

Source: Author’s own compilation based on research data

Table 2. Significant rank correlation coefficients

Source: Author’s own compilation based on research data

Unfortunately, it is known that averages do not always provide a good basis for evaluation. To find out which services’ rankings are close to each other for most respondents, we calculated Spearman’s rank correlation coefficients (rho – ρ).

The coefficient values show that the provision of production inputs and professional consultation are the most closely related. This means that many respondents ranked these two services similarly, but as the averages indicate, they were mostly ranked towards the bottom of the ranking.

For the other pairs of factors, the coefficient value is negative, which means that the ranking was in the opposite direction. That is, those who found price more important, also found pre-financing less important, and vice versa. The results can be further nuanced by calculating the mode of services: this shows which place the service in question was ranked by most respondents. The boxplot diagram (Figure 3) clearly shows that guaranteed takeover of produced crops and products was ranked first for most respondents.

Figure 3. Boxplot diagram

Source: Author’s own compilation based on research data

Figure 4: Are there any disadvantages and risks of participating in integration?

Source: Author’s own compilation based on research data

Figure 5: Intended length of integration cooperation

Source: Author’s own compilation based on research data

With my next question, I looked at the reasons for non-integration. I asked if respondents saw any disadvantages or risks in cooperation. If so, what these are. It was also investigated whether their opinion is influenced by the fact that they take part in or refrain from integration.

48.4% of respondents felt that there are both disadvantages and risks in integration. Interestingly, more than a third (38%) of enterprises that do not participate in integration do not see any disadvantages or risks of integration (Figure 4). Those who participate in producer groups are the least likely to see risks. Overall, those who participate in some form of cooperation are less likely to perceive it as risky. The correlation is significant as shown by Cramer V= 0.253; p=0.016.

The most important of the disadvantages mentioned is that the contract price may be lower than the market price, mentioned by 36.6% of the “dissatisfied” respondents. This is followed by not receiving information in time and delays in the allocation of aids. The least criticised factor was seed quality.

Figure 5 shows that the majority of integration participants (57.8%), amounting to 37% of all respondents, think in terms of integration over a timeframe of more than five years. Less than 20% of integration participants (12.4% of all respondents) plan for a 1-2 -year time horizon, while 22.5% (5% of all respondents) think in terms of a 2-5-year time interval.

I also examined whether producers are planning to establish new relationships, regardless of having established them before or not (Figure 6). A large majority of respondents (69.4%) do not have plans to form new integration relationships, and 52.7% are not currently involved in any cooperation, but 36.5% are members of producer groups. Of those who are planning to develop new relationships, 24% are not currently part of any integration or do not participate in any cooperation, but 47% are part of a producer group.

Figure 6: Plans to establish new integration relationships?

Source: Author’s own compilation based on research data

Figure 7: Reasons for planned participation in integration

Source: Author’s own compilation based on research data

Figure 8: Plans to develop new integration relationships, by age group

Source: Author’s own compilation based on research data

There is a moderately strong significant relationship between current integration membership and planned future membership (Cramer V=0.3; p=0.002): those who do not cooperate are highly unlikely to plan to do so in the future.

The reasons for establishing new integration relationships are shown in Figure 7. It can be seen that the largest proportion of those who have plans to develop new integration relationships in the future believe that this will help them to stay in the market in the long term. A high proportion also think that this could help counterbalance the predominance of multinational companies. The other factors only appeared in a few mentions (17 mentions in total).

When asked about their knowledge of the forms of integration, the following was found: the majority of respondents (71.8%) prefer both horizontal and vertical forms of integration, while 19.8% prefer vertical integration and 8.4% prefer horizontal integration. It is noteworthy that 18.6% of the companies in the sample did not answer the question. Even more respondents, 26.1%, could not decide whether it is beneficial to participate in both or not. 34.8% think so, while 20.5% do not believe that both can be beneficial at the same time.

I also looked at willingness to participate by age, and the results revealed that under-35s tend to seek new and long-term integration relationships, while over-35s do not. The methods of analysis were the Chi2-test and the Cramer V index.

The examination of the distributions shows that the majority of older people (74.1%) do not have plans to establish new integration relationships, while the majority of young people (53.8%) do. The relationship is significant: 2=8.027; p=0.005. The strength of the relationship is indicated by the Cramer V indicator: V=0.223; p=0.005. This is a weak to medium strength relationship.

Summary

My study dealt with the role and competitiveness of agricultural producers and family farms in the national economy. I sought to answer the question whether succession has an impact on farmers’ – formerly rejected – cooperation and innovation capacity. The results show that more than half of the farmers are involved in integration, but the cooperative as a form of integration is still less popular than other forms. It has also been found that respondents prefer to think of integration as a security solution, i.e. having someone to take over the crops produced, which provides a guaranteed income for the contractor. Pre-financing is also an important factor, given the specific characteristics of agriculture. My survey has shown that more than half of those who do not favour cooperation, neither have future plans to join any form of cooperation. This is despite the fact that two thirds of respondents consider both horizontal and vertical integration beneficial. Finally, I have also pointed out that the majority of under-35 respondents are striving for long-term integration relationships, which is less prevalent among the over-35s. The results thus show that farm transfer can improve and strengthen the willingness to cooperate.

The present study is the result of my own doctoral research, which, given the timeliness of the topic, has been analysed by our authors from several different angles.

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Dr. Ibolya Szentesi PhD, Senior lecturer
Universitxy of Debrecen

prof. Dr. László Ungvári
Technische Hochschule Wildau – Prasident a. D.