The Efficiency of the Hungarian Grazing Livestock Farming

Molnár, Dániel – Csonka, Arnold – Bareith, Tibor

Keywords: pasture farming, Markov-chain, market efficiency, profit persistence, AR-models, D40, Q12, Q135

In this study, the market efficiency of the Hungarian grazing livestock farming was examined between 2006 and 2018. In terms of profitability (measured by Return of Assets – ROA), an improving situation of the sector can be seen. Market efficiency was examined using Markov chain and profit persistence estimation. For estimating the profit persistence, AR(1)-AR(3) models were applied and the most fitting model was selected by Akaiks Information Criterion (AIC). The Markov chain analysis and the profit persistence estimation gave consistent results, the profit persistence (λ) is low in grazing livestock farming, the profit rates of the farms quickly return to the market equilibrium level, implying an efficient competitive market. Examinations by legal status of farms and farm size showed that individual farms are more likely to reach an above-the-market-average abnormal profit (positive (λ)), while corporate farms tends to approach the market average profit from below (negative (λ)). Based on farm size, we found that medium-scale farms are more likely to have positive profit persistence than small-scale farms. An examination of long-term profit persistence suggests that the profitability of twenty percent of farms deviates from the equilibrium level significantly. Our results are policy-relevant, as they show that market efficiency in domestic grazing livestock production is relatively high, with profitability levels determined by market competition. We attach particular importance to the development of a policy strategy aimed at the further development of pastoral livestock farms, technological convergence and the stability of profitability of medium-scale farms.

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