TECHNICAL AND FINANCIAL SUSTAINABILITY IN SCOTTISH AGRICULTURE

This paper presents results of estimates of both the financial robustness and the technical efficiency of a representative sample of Scottish farms. Emphasis was placed on those factors that impact on long-term sustainability in order to identify those effects that may be characterised as having a high propensity to further increase the vulnerability of the sector. The aim was further one of providing focussed knowledge that might steer the policy decision making process towards potential targets of importance. Series of financial indicators were modelled to assess the financial health of each farm in the sample as well as predicting the future viability of each enterprise. Further, physical and financial data were employed to ascertain the technical efficiency of farms and possible sources of inefficiencies. On the strength of the findings, we concluded that farms that are characterised by being not being in Least Favoured Areas (LFA), specialised, large and with low indebtedness are those most likely to survive. However, although technical efficiency and financial distress indicators confirmed that while a significant proportion of farms were classed as being in financial distress, most of those being in LFA and mostly cattle or sheep farms, these same indicators effectively suggested that given the specialised nature of those farms, continued survival was possible, specifically where the debt ratio could be reduced to ideally zero while no significant attempt would be made at diversification of the agricultural enterprise. While some factors are rather fixed such as geographical location, in order to ensure continuity others can more easily be targeted for improvement, namely farm size, degree of specialisation, farmers' accumulated knowledge and financial health.