Farm debt consolidation programmes and their effects (2000-2004)

Guba, Mária - Harza, Lajos

Keywords: debt consolidation, indebtedness, own capital, liquidity, development

The ratio of own capital in business partnerships engaged in agricultural activity and operating double-entry book-keeping reached a nadir – 49% – in 2000, the first year of consolidation measures. The businesses’ financial situation improved somewhat in the following two years, partly due to debt consolidation measures. Then from 2003 – despite continued total growth – the ratio of equipment stock financed through own capital fell once more, reaching a new low point of 46% in 2004.

Overall, debt consolidation eased the situation of affected businesses. However, complex processes are hidden behind the data averages. For one particular group of farms, the effective utilisation of assistance received through debt consolidation is unequivocal. They experienced a pronounced shift in the scale of debt reduction and increased profitability. In another group indebtedness continued to rise and the businesses’ financial and economic situation deteriorated. Obviously we cannot tell what the consequences would have been for these particular business groups if the programme(s) had been postponed. Would they have found a means of staying afloat, how effective would an alternative form of debt restructuring have been, and what contribution – or loss – could a change of management have made?

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