4.2.2.5 ROE for diversified production
This group is the biggest in terms of number of values, with
256 farms analyzed for 5 years. However, this is a really heterogeneous group,
with farms that cannot be compared between each others. Therefore the
diversified group was not analyzed in details because the results would not be
useful in terms of managerial implications.
4.2.2.6 Results Summary for ROE by Groups of
Leverage
Table 17 presents a summary of the results of the statistical
tests. The group 2 showed the best results in terms of ROE, followed by group
3. Groups 4 and 5 on the contrary have really often significantly lower results
than groups 2, 3 and in one case group 1.
|
Year
|
|
Dairy
|
|
|
Grain
|
Cattle
|
|
Diversified
|
|
2006 2007 2008 2009 2010
|
1
2
|
& 2
& 3
2
|
-
& 3 -
> 4
> 4
|
>
&
|
5
5
|
-
2 >
- 2 > 2 >
|
5
4
4
|
-
-
2 > 5
-
-
|
2
|
& 3
2
2
|
-
> 4 -
> 5
> 5
|
& 5
|
Table 17: Results of the Mood's median tests summary for
ROE by groups of leverage for each years
Table 18 presents the average ROE for all specializations and
all years. Diversified and dairy farming have really close results regarding
their overall means. However, it seems that diversified production is much more
volatile, moving from 13.9% ROE on average in 2007 to 4.0% in 2009. For milk,
the range starts from 5.4% in 2006 and goes to 11.7% in 2008. It seems that
this specialization is less risky than diversified production or grain farming.
Cattle's farming, on the contrary, has always the lowest results except in
2010. It seems that the economical performances of these farms are
chronically insufficient. 2010 is an exception, with the rise
of the price of meat linked with the new export opportunities to Turkey. This
improvement of the market conditions for cattle farming still has to be
confirmed, because it depends so far on a customer representing more than 50%
of the exports: if Turkey stops its importations as it did in the past, prices
could fall sharply.
|
Specialization
|
2006
|
2007
|
2008
|
2009
|
2010
|
Mean
|
|
Dairy
|
5,4%
|
9,3%
|
11,7%
|
7,8%
|
5,6%
|
8,4%
|
|
Cattle
|
-5,4%
|
3,5%
|
3,6%
|
1,5%
|
13,7%
|
2,2%
|
|
Grain
|
2,0%
|
21,2%
|
18,6%
|
2,7%
|
7,7%
|
11,3%
|
|
Diversified
|
4,0%
|
8,7%
|
13,9%
|
4,3%
|
12,3%
|
8,3%
|
|
Mean
|
3,2%
|
10,3%
|
13,0%
|
4,8%
|
10,1%
|
8,2%
|
Table 18: Weighted average ROE for all specialization and
by years
However, a really different outcome can be observed looking at
Table 19, which presents the ROE by specialization and by groups of leverage
(all years are considered in this table). The cattle specialization, which
obtains low results every year except in 2010, is profitable when the leverage
is higher than 40%. On average, the farms of Isère are economically more
profitable when the leverage increases, particularly for milk and cattle. We
can observe a fall in the results for group 1, particularly for dairy farms,
which can be explained by the financial distress that can occurs when leverage
is too high.
|
Specialization
|
Group 1
|
Group 2
|
Group 3
|
Group 4
|
Group 5
|
Mean
|
|
Dairy
|
-2,4%
|
11,7%
|
9,3%
|
6,3%
|
3,7%
|
8,4%
|
|
Cattle
|
1,2%
|
7,3%
|
7,4%
|
1,3%
|
-4,8%
|
2,2%
|
|
Grain
|
9,4%
|
12,5%
|
11,5%
|
12,0%
|
10,5%
|
11,3%
|
|
Diversified
|
5,7%
|
12,4%
|
11,1%
|
4,4%
|
5,4%
|
8,3%
|
|
Mean
|
4,6%
|
11,8%
|
10,2%
|
5,9%
|
4,8%
|
8,2%
|
Table 19: Average ROE by specialization and by
group
These results are totally consistent with the initial
hypothesis which states that there is an optimal level of debt for farming.
From the ROE results, group 2 and group 3 obtain the best results, which is an
indication that the optimal leverage lies between 40% and 80%. Group 3 has
similar results than group 2, except for dairy production. Therefore, the
optimal leverage must be higher for this specialization.
The major highlights for the analysis of the ROE are:
- Performance increases significantly with financial
leverage,
- Financial distress may occur for all production for
leverage higher than 80%.
|
|
