Operational Analysis of the Major Commodity-producing Sheep Farms in Hungary

Madai, Hajnalka –Vida, Viktória –Jávor, Bence –Nábrádi, András

Keywords: slaughter lamb production, production value, reproduction, market prices JEL: O12, Q12

DOI: https://doi.org/10.53079/GAZDALKODAS.67.4.t.pp_291-314
Since joining the EU, the sheep sector has been characterized by negative profitability, uncompetitive technological indicators, single-market export sales and stagnant herd numbers. The 2020-2022 lamb sales price increase could have been an outstanding opportunity for high-quality farms, if the input prices had not risen even more. Based on the production and export-import data of the sheep sector, our goal was to examine which factors influenced the results achieved in the last 18 years. The investigated farms are found to be of good quality in the domestic context, therefore, through the evaluation of the data, the results can be considered well-founded. During the analysis, we revealed the determining elements of the total production cost in an average of 18 years, such as feed costs, labor costs, the depreciation value of breeding animals, and animal health costs, which accounted for 81%. According to the published methodological approach, we demonstrated the effects of changes in feed, labor, breeding animal value differences and changes in animal health costs. Over the years, they accounted for nearly 53% of the total production cost. Wages and contributions accounted for an average of 15.25% of total production costs in the 18 years examined. Animal health costs accounted for 4.47% of total production costs in an average of 18 years. Our hypothesis is that the profitability of domestic sheep farms is low, unprofitable on average in the years examined, which can be traced back primarily to the disproportionality of low reproduction indicators and high production costs.
Knowing the factors affecting revenues, we examined in which areas it is possible to improve the sector's result, which is primarily based on the producer and not on the free market mechanism. Accordingly, we carried out break-even calculations, which were used to examine by what percentage the revenues should increase at least - with special emphasis on the growth rate - so that the sector does not become unprofitable (with or without subsidies). In an average of 18 years, we showed that in the case of the factors influencing the production value, the value calculated after live lambs gave 67.44% of the income. The income accounted for after subsidies is the second largest, exceeding 16% of the total production value. Regarding the evolution of the results, we found that in 18 years, only in 2006 was the result - without support - positive even then in the value of only HUF 295/ewe. Based on the performed sensitivity test and the margin calculations, the data show that in order to avoid the loss, the reproductive index should be increased by at least 23% on average, which corresponds to a minimum of 1.27 instead of the 1.03 lamb/ewe index. A higher ratio than this must be achieved if prices do not rise, if the subsidy does not change or even decreases, assuming that production costs do not change either. Due to the state of the economy, it is also reasonable to consider the need for growth in the case of cost factors, that is, knowing the figures, we can assume that the reproduction index of 1.5 is the value that sheep farms should reach on average in order to start expanded reproduction, and then they can make it happen.
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