Dynamics in the economic performance of farms: a quintipartite decomposition of the profitability change at the aggregate level

Abstract

This paper presents a framework for decomposition of changes in farm profitability with regards to structural, activity and intensity (efficiency) effects. The Index Decomposition Analysis (IDA) is adapted for isolation of the effects of profit margin, asset turnover, leverage, capital intensity and structure. The proposed approach complements the regression-based analysis as the IDA allows combining data from different levels of aggregation and taking the structural change into account. The Shapley value is applied to facilitate the decomposition. The proposed model is applied to the case of Greek farms for 2010–2017. Besides from the theoretical contribution to analysis of the farm profitability, this paper is first to evaluate the financial performance of Greek farms.