The Impact of EU Subsidies on the Competitiveness of Slovak Farms from the Perspective of Legal Form

Abstract

Supporting the competitiveness of farms is one of the main priorities of the European Union’s Common Agricultural Policy. Therefore, the analysis of transfer efficiency is an important element in the policy evaluation process. The primary aim of this partial research was to evaluate the development of farms’ competitiveness in Slovakia, considering the financial support from the European Union and focusing on the legal form perspective. We assessed farm competitiveness using the Recourse Cost Ratio coefficient, which compares costs and revenues of entities in Slovakia’s agricultural sector from 2004 to 2019. The analysis revealed statistically significant differences in competitiveness among farms based on their legal forms. From these findings, it is recommended that effective farm management is crucial for enhancing competitiveness, productivity, and profitability across all farms. Despite the specifics of individual legal forms of business, it is important to clarify that it is often the skills and abilities of the management of each enterprise that contribute to better acquisition of financial resources and also strengthen the competitive position of the farm in the market.

1. Introduction

Being competitive in a constantly changing market economy forms an elementary aspect of every successful business. Nowadays, there are several methods for assessing competitiveness, through which companies can examine their survival in a fierce business environment and find ways to improve and become leaders among the competition. Economic theory suggests that the primary goal of a business is profit maximization, which helps a company withstand competitive pressures. The agricultural sector in the countries of the European Union (EU) is highly differentiated in terms of farm size and their organizational/legal structure, and is also significantly regulated by the unified approach of the EU’s Common Agricultural Policy (CAP), which declares one of its main goals to be increasing the competitiveness of agricultural enterprises. Much of the EU budget flows into the agricultural sector of individual countries; however, the problem lies in the differences in the competitiveness of farms between EU countries, to the detriment of the countries in the eastern part of the EU, including Slovakia.

The total area of agricultural land in Slovakia in 2022 was 2,372,341 hectares, which represents approximately 48.38% of the total area of the country. The largest portion of this area was arable land at 59.18%, followed by permanent grassland at 35.78%. The share of agriculture in gross domestic product (GDP) was 1% in 2005. After 2010, this share increased, peaking at 1.5% in 2018. In 2019, the share of agriculture in GDP returned to the 2005 level. Within Slovak agriculture, crop production has long dominated, contributing nearly 60% to total revenues. This suggests that the gap between crop and livestock production will continue to widen, as livestock production is more capital-intensive under Slovak conditions. Support mechanisms played a crucial role in the economy throughout the observed period, as most farms would have been unprofitable without them. In 2019, nearly 73% of financial support for Slovak agriculture came from EU sources, with only a portion co-financed by the Slovak state budget. The share of total supports in revenues reached 34.9%, with direct payments accounting for 17.4% [1].

This topic is very interesting given the above context, but also due to the constant pressure to increase competitiveness and strengthen the sustainability of farms. The main question that generally supports research in economics is specifically the allocation of resources, which is more than significant in this area from the perspective of the European budget. The analysis of the impact of agricultural performance on competitiveness defines an important step in identifying opportunities, challenges, and proactive measures in designing a functional and designated model of agriculture.

In our research, we based our measurement of competitiveness on Porter’s generic strategy of cost minimization (the idea of cost leadership), measured using the Recourse Cost Ratio (RCR) coefficient. This coefficient is calculated as the ratio of costs of non-tradable domestic inputs (labor, land, and capital) to revenues from tradable products. The paper is structured as follows: Section 2 presents the theoretical background of the competitiveness of the agricultural sector. Section 3 is dedicated to the description of the methodology, including the scope of the research sample, a description of the data used in the analysis, as well as a description of competitiveness using the RCR coefficient. Section 4 describes the obtained results, while Section 5 discusses these results. Section 6 summarizes the key findings of the research, suggests practical implications, and outlines possibilities for future research, noting the paper’s limitations.

2. Literature Review

According to Tomashuk [2], the development of agriculture is one of the key vectors for ensuring a country’s food security, shaping its export potential, providing a source for budget revenues, and strengthening the overall economy. Competition is the main tool for regulating the market economy and an important part of the market environment for enterprises. Effective competition increases the efficiency of economic activities and accelerates scientific and technological progress.

The issue of determining the competitiveness of various economic organizations is among the most common academic and practical problems from the inception of economics to the present. This is particularly important for the agricultural sector, characterized by numerous participants, high specialization and exchange, strong competition at local, national, and international levels, highly integrated food and supply chains, market segmentation, unequal public support, strong state regulation, processing and trade organizations, strong consumer pressure for quality, ecological behavior, and so on. There are also undeveloped and non-competitive “markets”, etc. Key questions include how to measure the competitiveness of different organizations in agriculture, the absolute and comparative competitiveness of various types of farms, and the critical factors for increasing competitiveness in the current stage of development. From the perspective of Constantin et al. [3], the competitiveness of enterprises has always been a challenging topic for the scientific community, aiming to find the best possible tools for its measurement. This challenge becomes even greater when approached in relation to specific economic sectors, including agriculture.

The proposed approach should be improved and applied more widely and regularly to increase accuracy and representativeness. This requires close cooperation with producer organizations, advisory services, and other stakeholders, as well as an improved system for collecting agricultural information in the country.

The most important mechanism for supporting the agricultural sector in most European countries is subsidies. Providing subsidies is a tool for attracting investments into agriculture, thereby strengthening the development capacities of this sector to achieve sustainable development. The policy of subsidizing the agricultural sector is a highly debated issue in the context of whether it represents a key tool for supporting the stability and development of the agricultural sector. According to Petreanu and Zaharco [4], given the importance of the agricultural sector for the national economy, improving the subsidy system in agriculture is a constant focus of the state, and its effectiveness is an important tool for supporting economic growth and reducing poverty in rural areas. In recent years, a more complex and multidimensional approach to this system has been tested to identify the optimal mechanism for selecting the directions for subsidy allocation.

Agriculture is one of the key sectors of any economy. Generally, it is considered a risky sector because it is strongly influenced by weather and natural climatic conditions. Agricultural enterprises are also heavily dependent on current public subsidies. This is confirmed by Spicka [5], who states that the low tendency towards insolvency in this sector is precisely due to current subsidies. Without these subsidies, farms would be operating at a loss on average in all production regions and most legal forms within farming.

The Common Agricultural Policy is one of the oldest policies of the European Union and has been developing the agricultural sector for more than 60 years. It is undeniable that the EU’s Common Agricultural Policy is a highly debated policy, as it allocates large financial resources to the European agricultural sector every year and is criticized for being outdated and trade-distorting. The relatively high expenditure of the CAP is criticized by proponents of the neoliberal approach, who raise concerns about market distortions [6,7]. On the other hand, according to Boháčiková et al. [8], farms are also affected by specific risks that are not common to other sectors of the economy. The biological nature of agricultural production, dependence on climatic and natural conditions, seasonality of production, health of plants and animals, price volatility, and the constantly changing legislative environment represent unique sources of risk in agriculture. This subsequently affects short-term and long-term production planning, resource allocation decisions, and the creation of the product portfolio of farms. Due to these constantly changing influencing factors, farmers cannot have certainty of income. The CAP thus represents a stability factor for all farmers, allowing them to maintain their business for profit during difficult periods and providing additional income during normal periods. This helps farmers invest in modern equipment, enabling them to pursue the most efficient and sustainable agricultural practices [9].

The competitiveness of farms is a complex and multi-dimensional concept that is studied from various perspectives. The competitiveness of agricultural enterprises from different criteria has been addressed by several authors in recent times, such as Nowak and Kasztelan [10]; Nowak and Zakrkewska [11]; Kalogiannidis and Chatzitheodoridis [12]; da Silva et al. [13]; Garcia-Agüero et al. [14]; Nugroho et al. [15]; Dimovski et al. [16]; and Borisov et al. [17]. These authors have contributed to the understanding of various aspects and determinants of the competitiveness of agricultural enterprises from different perspectives, whether economic, innovative, social, or environmental. The financial security and competitiveness of farms are also shaped by other factors, such as the legal form or the stage and cycle of the reproductive process.

The quality of a company’s management is a factor that affects its competitiveness and indicates whether managerial decisions support effective development strategies and the long-term growth and prosperity of the company. Proper quality management primarily means the professional execution of managerial functions, where a crucial role of management is also to provide the company with sufficient flexibility for development. [18]. Within the theoretical framework, we encountered several methods to increase a company’s competitiveness. For example, Holgado and Binott’s study [19] confirmed the growth of innovation performance to increase competitiveness for agricultural cooperatives. From an economic and financial perspective, this led cooperatives to expand their product offerings, thereby diversifying and gaining new markets. Correlation analysis in Matyjová’s study [20] suggests that factors such as intangible resources, e.g., know-how, managerial competencies, or the quality of human resources, as well as external conditions like climatic conditions or geographical distribution, have a relative impact on the competitiveness of enterprises. Dimovski et al. [16] argue that one of the driving forces and main determinants of agricultural competitiveness is human resources. They contribute to its improvement through well-formed and continuously updated knowledge and skills of agricultural workers. In the context of scarce natural resources, demographic changes, and the need for more intensive agricultural production based on modern technologies, the development of human resources in agriculture becomes a necessity. In this sense, the legal form of a business also has its justified role. Cooperatives in the agricultural sector are compelled to assert themselves in the market against predominantly commercial companies. The general pressure in business within the agricultural sector is to achieve economies of scale. Therefore, cooperatives must assess their resources, which may lead to changes in organizational structure or possibly diversification of the production chain [21,22].

Agricultural cooperatives are like capital organizations, but they are governed by cooperative doctrinal principles and consider the social dimension of the company in addition to the economic/financial dimension. The internal structure of cooperatives directly influences their efficiency and competitiveness. Within cooperative management, an issue is often the prioritization of individual interests over the interests of the cooperative as a business form. Therefore, in some cases, management may find it challenging to implement decisions that could be crucial from an efficiency standpoint [23]. Theoretical works assessing the economic characteristics of cooperative decision-making focus on the specific role of farmers within cooperatives. Cooperatives, as businesses owned by members and democratically governed, are expected to prioritize the economic gains of their members. Unlike firms owned by investors, the goals of cooperatives generally do not solely focus on profit maximization [24].

The analysis of the impact of agricultural performance on competitiveness defines an important step in identifying opportunities, challenges, and proactive measures in designing a functional and designated model of agriculture. In terms of the agricultural competitiveness of EU member states, it is necessary to continuously monitor changes, which requires the creation of an appropriate set of metrics that would help improve the competitive position of both enterprises and the sector itself within the national economy.

The novelty of this article lies in its microeconomic examination of competitiveness using the cost–revenue ratio in a significant sample of farms spanning the entire period since Slovakia’s accession to the European Union and thus the beginning of the Common Agricultural Policy’s implementation in Slovakia. A significant contribution is the investigation and exploration of competitiveness differences among farms based on their receipt of European subsidies, which constitute a part of the revenue side of the selected competitiveness coefficient. This contribution attempts to fill a research gap in this field, particularly in terms of identifying the strength of these differences from the perspective of legal form, which is highly specific in Slovakia compared to Western member countries.

The purpose of the research presented in this paper is to assess the competitive potential (i.e., potential competitiveness) of Slovak farms from the perspective of the legal form of businesses on the single European market in the context of EU subsidy support. The conducted research demonstrated that Slovak agriculture, although it has significant production potential under national conditions, is characterized by significant structural deficiencies in this potential at the European level, which directly affect its competitive position currently and will do so in the near future. However, in the long term, the ability to maintain or improve competitiveness will also be determined by the elimination of these deficiencies.

3. Materials and Methods

Since examining competitiveness at the enterprise level in agriculture is quite complex and there is not as much research on this level as there is at the macroeconomic level, we decided to direct our research precisely to this area of knowledge using a more significant research sample within the conditions of the Slovak Republic.

Several authors, such as Zia et al. [25], Nowak and Kasztelan [10]; Nowak and Rozanska-Boczula [26] (2022), Besic et al. [27], Stoeva et al. [28], Hoang [29], and Simin et al. [30], have dealt with the issue of competitiveness in the agricultural sector. However, there are very few studies that have evaluated the competitiveness of agricultural enterprises using the RCR coefficient, which was our main motivation and opportunity for this research.

The main aim of the research was to evaluate the development of the competitiveness of farms in Slovakia in the context of European Union financial support from the perspective of legal form. To support the fulfillment of the established goal, from which the research problem itself arises, the following hypothesis was established:

H1: 

We assume that there is a statistically significant difference in the competitiveness of farms measured by the RCR index from the perspective of legal form.

The difference in competitiveness, i.e., in the RCR coefficient with and without subsidies from the perspective of legal form, was tested using the Mann–Whitney U test, which compares two or more independent groups, where the formula is as follows:

$$U_{1\left(2\right)}=R_{1\left(2\right)}-{\displaystyle \frac{n_{1\left(2\right)}\left(n_{1\left(2\right)}+1\right)}{2}}$$

(1)

where n₁₍₂₎ is the sample size of the first (second) group and R₁₍₂₎ is the sum of the rank in sample 1(2). The research focuses on a sample of subjects operating in agricultural land in Slovakia during the period from 2004 to 2019, i.e., a 16-year period (including the most recent available data). Work is still ongoing to obtain newer data, as this process is very time-consuming. During the observed period, attention is paid to the development of competitiveness by examining differences arising from the legal form of the evaluated subjects, specifically differences between agricultural cooperatives (ACs) and non-cooperatives, mostly business companies (NonACs). The RCR index is a ratio indicator that operates with two variables in the following form [31]:

$$RC{R}_i={\displaystyle \frac{C_i}{R_i}},$$

(2)

where RCR_i is the RCR coefficient in year i, C_i denotes costs in year i, and R_i represents revenues in year i. Costs (C) include procurement costs + production consumption + personal expenses + depreciation + taxes and fees. Revenues (R) consist of sales revenues + production + subsidies. In terms of subsidy support, we considered only EU grants within the first and second pillars of the CAP. We wanted to assess the impact of European assistance in the context of increasing the competitiveness of the Slovak agricultural sector. The RCR coefficient is a national dimension coefficient that works with national reports and terminology within Slovak accounting. However, we believe its use in a similar context has broad applicability and could serve as inspiration for neighboring EU countries after modification for national reporting conditions.

If the RCR ranges between 0 and 1, there is an evident competitive advantage because revenues exceed costs. If the RCR value exceeds 1, there is an evident competitive disadvantage as revenues are insufficient to cover the costs of non-tradable domestic inputs.

The data for this research were provided from the database of the Ministry of Agriculture and Rural Development of the Slovak Republic. The total research sample consists of legal entities and individuals from the period after Slovakia’s accession to the European Union (period 2004–2019). Within the research sample, we present a detailed breakdown of farms according to their legal form (

Table 1. Research sample in the context of legal form.

	AC	NonAC	Total
2004	537	609	1146
2005	546	721	1267
2006	543	694	1237
2007	528	712	1240
2008	516	678	1194
2009	504	688	1192
2010	486	694	1180
2011	508	750	1258
2012	497	817	1314
2013	479	825	1304
2014	458	792	1250
2015	455	837	1292
2016	451	819	1270
2017	449	811	1260
2018	447	813	1260
2019	441	791	1232

(Source: own processing).

), including only those farms with flawlessly verified financial statements. The research sample during the studied period consisted of 2509 entities since Slovakia’s entry into the European Union, with data sheets capturing economic data for agricultural enterprises that managed 81.3% of Slovakia’s cultivated agricultural area during the studied period (1,930,570 ha). After our data cleaning, the research sample is as follows:

4. Results

Enterprises of legal entities, including agricultural cooperatives and business companies, have been and continue to be a decisive production group in Slovak agricultural production. In 2004, both legal forms achieved positive pre-tax economic results amounting to EUR 45.87 million. A total of 83% of farms were profitable, with 79% of agricultural cooperatives and 87% of business companies being profitable. The level of economic results and the share of profitable farms were the highest since 1990. The overall economic performance and financial situation of farms were influenced by the subsidy system that Slovak agriculture adopted in accordance with the CAP after joining the EU. By May 2004, national subsidies for direct payments amounted to EUR 76.43 million for farms. Following Slovakia’s accession to the EU, subsidies totaling EUR 156.01 million were paid out by the end of 2004 [32]. The average annual amount of financial support from the EU for cooperatives before and after 2004 was EUR 282,480, while for non-cooperatives it was EUR 179,012. The median number of subsidies for cooperatives and non-cooperatives was EUR 227,677 and EUR 114,021, respectively. As shown in Figure 1, the amount of financial support from the EU increased until 2009, followed by a decline that reached its lowest point in 2013. According to MPRV SR [33], the differences in economic performance between agricultural cooperatives and commercial companies persisted, and the average profitability was significantly reduced. The creation of business companies, which generally originated from the credit parts of agricultural cooperatives, occurred without the appropriate acceptance of obligations towards banks and business partners, as well as a reduction in the production costs of goods.

As can be seen in Figure 2, the receipt of EU financial support significantly enhances the competitiveness of farms of both legal forms. The target value of the RCR coefficient below 1 would not have been achieved without subsidy uptake by enterprises of either legal form in any of the years examined. Enterprises of both legal forms achieved their highest competitiveness levels in 2006 and in the period from 2015 with subsidy uptake. It is also noteworthy that despite cooperatives drawing a higher volume of financial support throughout the entire observed period compared to non-cooperative enterprises, this did not translate into significant differences in competitiveness across the observed period. In fact, in 2008 and 2010, non-cooperative enterprises were more competitive.

In

Table 2. Descriptive statistics of the RCR competitiveness coefficient for the entire study period (2004–2019).

Legal Form	N	Min	Q1	Median	Average	Q3	Max	St.dev
ΣS 04-19	19,896	−84.8468	0.8325	0.9477	1.0779	1.0264	605.4869	5.2517
ΣNS 04-19	19,883	−1879.3023	1.1279	1.3252	1.9201	1.7954	755.9171	17.5908
AC_S	7845	−83.0183	0.8585	0.9624	1.0513	1.0429	605.4869	6.9156
AC_NS	7840	−434.2857	1.1875	1.3829	1.9874	1.7947	755.9171	13.3571
NonAC_S	12,051	−84.8468	0.8114	0.9364	1.0952	1.0142	202.5082	3.7951
NonAC_NS	12,043	−1879.3023	1.0753	1.2788	1.8763	1.7965	653.3969	19.8684

Note: AC_S—agricultural cooperative with subsidies; AC_NS—agricultural cooperative with no subsidies; NonAC-S—non-cooperative with subsidies; NonAC-NS—non-cooperative with no subsidies (Source: own processing).

, we present the descriptive statistics of the competitiveness coefficient with subsidies (ΣS) as well as with no subsidies (ΣNS) for the entire observed period from 2004 to 2019.

In the following section, differences in competitiveness are examined, specifically the RCR coefficient with and without subsidies based on legal form. We utilized the Mann–Whitney U test, the results of which are presented in

Table 3. Mann–Whitney U test (RCR with subsidies).

Dependent Variable: RCR with Subsidies		Independent Variable: Legal Form Marked Tests Are Significant at p < 0.050
		Valid N	Rank Sum Group	U	Z	p-Value	Z Adj.	p-Value
	AC	7845	83,420,687	41,895,343	13.5751	0.0000	13.5751	0.0000
	NonAC	12,051	114,514,669
2004	AC	537	324,733.0	146,753.0	2.9982	0.0027	2.9982	0.0027
	NonAC	609	332,498.0
2005	AC	546	380,516.0	162,481.0	5.3261	0.0000	−5.3261	0.0000
	NonAC	721	422,762.0
2006	AC	543	374,085.0	150,453.0	−6.0892	0.0000	−6.0892	0.0000
	NonAC	694	391,618.0
2007	AC	528	362,834.0	152,758.0	−5.6469	0.0000	−5.6469	0.0000
	NonAC	712	406,586.0
2008	AC	516	339,757.5	143,476.5	5.3278	0.0000	5.3278	0.0000
	NonAC	678	373,657.5
2009	AC	504	329,794.5	144,217.5	−4.9661	0.0000	−4.9661	0.0000
	NonAC	688	381,233.5
2010	AC	486	318,528.0	137,097.0	−5.4751	0.0000	−5.4751	0.0000
	NonAC	694	378,262.0
2011	AC	508	344,940.0	165,346.0	−3.9784	0.0001	−3.9784	0.0001
	NonAC	750	446,971.0
2012	AC	497	379,154.0	150,648.0	−7.8518	0.0000	−7.8518	0.0000
	NonAC	817	484,801.0
2013	AC	479	369,537.0	140,598.0	−8.6932	0.0000	−8.6932	0.0000
	NonAC	825	481,323.0
2014	AC	458	316,232.0	151,615.0	−4.8383	0.0000	−4.8383	0.0000
	NonAC	792	465,643.0
2015	AC	455	303,280.0	181,295.0	−1.4240	0.1544	−1.4240	0.1544
	NonAC	837	531,998.0
2016	AC	451	283,405.0	181,479.0	0.5124	0.6084	0.5124	0.6084
	NonAC	819	523,680.0
2017	AC	449	284,176.0	180,988.0	−0.1748	0.8613	−0.1748	0.8613
	NonAC	811	510,254.0
2018	AC	447	275,064.0	174,936.0	1.0954	0.2734	1.0954	0.2734
	NonAC	813	519,366.0
2019	AC	441	267,909.0	170,448.0	0.6626	0.5076	0.6626	0.5076
	NonAC	791	491,619.0

(Source: own processing).

for testing differences in competitiveness considering legal form and subsidies, and in

Table 4. Mann–Whitney U test (RCR with no subsidies).

Dependent Variable: RCR with no Subsidies		Independent Variable: Legal Form Significant Tests Are Marked at p < 0.050
		Valid N	Rank Sum Group	U	Z	p-Value	Z Adj.	p-Value
	AC	7840	84,603,333	40,550,508	16.8330	0.0000	16.8330	0.0000
	NonAC	12,043	113,073,454
2004	AC	536	323,831.0	146,509.0	2.9915	0.0028	2.9915	0.0028
	NonAC	609	332,254.0
2005	AC	546	362,175.0	180,822.0	−2.4824	0.0131	−2.4824	0.0131
	NonAC	721	441,103.0
2006	AC	543	359,580.5	164,957.5	−3.7630	0.0002	−3.7630	0.0002
	NonAC	694	406,122.5
2007	AC	528	361,756.0	153,836.0	−5.4740	0.0000	−5.4740	0.0000
	NonAC	712	407,664.0
2008	AC	513	330,323.0	147,793.0	4.3268	0.0000	4.3268	0.0000
	NonAC	675	375,943.0
2009	AC	503	336,616.0	133,689.0	−6.5332	0.0000	−6.5332	0.0000
	NonAC	683	367,275.0
2010	AC	486	309,812.5	145,812.5	−3.9624	0.0001	−3.9624	0.0001
	NonAC	694	386,977.5
2011	AC	508	340,475.0	169,811.0	−3.2722	0.0011	−3.2722	0.0011
	NonAC	750	451,436.0
2012	AC	497	353,343.0	176,459.0	−3.9824	0.0001	−3.9824	0.0001
	NonAC	817	510,612.0
2013	AC	479	343,793.0	166,342.0	−4.7662	0.0000	−4.7662	0.0000
	NonAC	825	507,067.0
2014	AC	458	308,978.5	158,868.5	−3.6587	0.0003	−3.6587	0.0003
	NonAC	792	472,896.5
2015	AC	455	334,663.0	149,912.0	−6.3231	0.0000	−6.3231	0.0000
	NonAC	837	500,615.0
2016	AC	451	310,983.0	160,312.0	−3.8965	0.0001	−3.8965	0.0001
	NonAC	819	496,102.0
2017	AC	449	314,796.0	150,368.0	−5.1247	0.0000	−5.1247	0.0000
	NonAC	811	479,634.0
2018	AC	447	306,866.0	156,673.0	−4.0507	0.0001	−4.0507	0.0001
	NonAC	813	487,564.0
2019	AC	441	298,880.0	147,412.0	−4.5104	0.0000	−4.5104	0.0000
	NonAC	791	460,648.0

(Source: own processing).

for competitiveness without subsidies.

The results of the Mann–Whitney U test demonstrated a statistically significant difference between cooperatives and non-cooperatives in the competitiveness of agricultural enterprises, both with and without subsidies. Therefore, we accept the research hypothesis. Statistically significant differences regarding legal form were confirmed in the case of the RCR without subsidies in each year, while for the RCR with subsidies, there have been no differences between cooperatives and non-cooperatives since 2015.

5. Discussion

The issue of resources in agricultural competitiveness is widely debated on national and corporate levels across Europe, highlighting the importance of identifying significant factors influencing agricultural competitiveness. This identification is essential for assessing a firm’s position relative to its environment and proposing suitable measures and strategies to enhance the competitiveness of agricultural enterprises [20]. For other countries entering the EU, it is crucial to have, first and foremost, a clear national agricultural strategy with transparent conditions for financing and state support.

Differences in economic performance among agricultural enterprises can be observed not only between enterprises operating in different natural conditions but also among enterprises of different legal forms. One might discuss whether legal form significantly determines the diversity of competitiveness among subjects. Based on test results, Adamišin et al. [34] found that commercial companies exhibit higher levels of economic success measured by selected economic indicators, though statistically significant differences were only observed in one case—the parameter of support per hectare of agricultural land. These findings are consistent with economic theory and the phenomenon known as the principal-agent problem. The results of this analysis suggest that agricultural enterprises require, in addition to basic production factors, subjective prerequisites such as creative and innovative thinking and managerial skills. These prerequisites are more typical for commercial companies and, therefore, more suitable for managing their business processes. The results also align with a study published in the Harvard Business Review [35], which showed that 87% of company breakdown factors depend on senior management’s work, with only 13% depending on external factors.

The study by Adamišin et al. [34] confirmed the higher competitiveness of commercial companies compared to agricultural cooperatives. The authors cite various reasons for this state, most commonly pointing to fundamentally different approaches to management processes within the company’s management or risk management, which are characteristic of the agricultural sector itself. An important and fundamental argument is also the better starting position of commercial companies compared to cooperatives, which emerged during the transition to a market-oriented economy.

While the organizational type of a farm is commonly included as an explanatory variable in studies of transitional economies, legal status is also used to explain farm efficiency and competitiveness in Western countries [36]. Hansen [37], argues that in the practical domain, ongoing discussions persist regarding the advantages, disadvantages, market position, and competitiveness of agricultural cooperatives and commercial companies. Analyzing and comparing the performance of cooperatives owned by farmers and companies owned by investors is not straightforward. The goals and success criteria of these two types of entities typically differ, emphasizing several key considerations. Commercial companies typically focus on shareholder value, measured as long-term return on invested capital. Agricultural cooperatives, on the other hand, generally strive to secure better selling prices and/or lower purchasing costs for their members. Improved selling prices are a highly visible and measurable competitive parameter, thus serving as an indicator of performance. Cooperatives owned by farmers in many countries serve multiple functions beyond purely commercial purposes; social, regional, or political activities may form part of their purpose, complicating comparisons and, importantly, the quantification of their value compared to commercial companies. In Europe, there are over 40,000 agricultural cooperatives with 9 million farmer members and more than 600,000 employees. Due to the democratic nature of the cooperative form, agricultural cooperatives are expected to empower their members and enable small farmers to have a stronger voice in the supply chain. However, a significant portion of the academic literature on agricultural cooperatives focuses on the economic and financial analysis of their performance [38]. Agricultural cooperatives cover a significant portion of the agricultural sector, and thus could play a role in improving the competitiveness of the entire industry. Cooperative values such as democratic decision-making, equality, and solidarity give cooperatives a unique identity that sets them apart from other types of businesses. Solidarity within cooperatives enables farmers to better cope with market risks. As cooperatives have members who are owners, investors, and users, they have a wide range of activities. They can design incentives to encourage farmers to change their practices through services provided, stronger market positions, and pooling investments, which results in the distribution of primarily fixed costs among members [22,39].

Financial management in farms is influenced by a range of factors not present in other industries. The study by Kravčáková Vozárová et al. [40] confirmed that one of the factors affecting firm performance is the legal or organizational form of business. In Slovakia, the farm structure is specific compared to almost any other EU member state. The study analyzed and compared two groups of agricultural entities, agricultural cooperatives, and commercial companies, for the period from 2005 to 2014. Based on the analysis of differences using mathematical and statistical methods, the authors concluded that legal forms are distinguished in all observed parameters, confirming the hypothesis of differences in the economic performance of agricultural entities according to legal form.

The agricultural sector receives substantial financial subsidies in various forms, both through programs linked to production and others that are separate from production. According to Mamun [41], the agricultural sector has reached its technological frontier in production over the past three decades, particularly in high- and middle-income countries. Therefore, it is interesting to examine the impact of subsidies on productivity at the aggregate level. The study examined the impact of subsidies on productivity growth in agriculture for 42 countries, covering more than 80% of agricultural production. The results show heterogeneous effects of different subsidy instruments, indicating a strong positive impact of input subsidies on production growth and labor productivity. Additionally, Sha et al. [42] systematically evaluated the impact of agricultural subsidies on farmers’ common prosperity. The research concluded that agricultural subsidies significantly increase the income level of rural households, reduce income inequality between households, contribute to general prosperity, and achieve the goal of common prosperity. However, the impact of agricultural subsidies on farmers’ common prosperity exhibits apparent heterogeneity due to differences in natural conditions, economic development levels, political environments, and the scale of farms in the region, necessitating different approaches.

Herda-Kopanska and Kulawik [43] argue that subsidies based on agricultural production are a common form of subsidies in many countries, including less developed ones, primarily due to their economic difficulties in achieving satisfactory food self-sufficiency, as well as highly developed ones. The authors state that at the turn of the 20th and 21st centuries, this support was not as popular, but its renewal began in the second decade, sometimes referred to as recoupling. The COVID-19 pandemic and the Ukraine–Russia war are undoubtedly two important circumstances that have increased interest in evaluating the competitiveness of agriculture, which will also shape the future direction and intersection of our research in this area.

The study by Nowak and Zakrzewska [11] examined the assessment of agricultural competitiveness in EU member countries from 2012 to 2021. The results showed that member states differ in terms of competitiveness in the agricultural sector. From 2012 to 2021, the most competitive countries were Denmark, the Netherlands, and Belgium. At the same time, the highest rate of improvement over the 10-year period was recorded in Finland, Slovakia, and Ireland. The study confirmed that differences between EU member states are still evident, with none of the new member countries ranking in the top ten in terms of agricultural competitiveness. Many agricultural areas in these countries require significant improvement. A large percentage of small and medium-sized farms have ceased operations in the last two decades, partly due to their inability to respond to increased competitive intensity. Therefore, understanding the strategic responses of farmers to competition intensity is important, as they can influence performance and ultimately survival [44].

The proper management of farms expands market opportunities, facilitates supply, improves the management of natural resources, supports environmental protection, and opens broader decision-making and managerial choices in the agricultural sector. The main management issues are the choice of farming system, the degree of specialization, the size of the operation, and the method of financing. Since management is a critical aspect of any agricultural business, it is becoming more important than ever. Cost management, efficient resource allocation, and revenue enhancement are all concerns for today’s farms. In past generations, the nature of agriculture was completely different from what it is today, and the changes that have occurred increasingly pressure farmers to manage their processes more efficiently. In the future, agriculture will face increased demand as the population grows and the amount of land suitable for agriculture decreases. Changes are also occurring in consumer preferences, which require, for example, new innovative products. Regardless of the legal form of business, competitive pressures have led to intense competition among agro-dealers across the EU. Wanyonyi et al. [45] confirmed that business age, promotion strategies, entrepreneurial skills, and business expenditures are positive drivers of competitiveness. Strengthening the financial systems of enterprises is an important step in supporting the adoption of new technology, which enables them to reduce operating costs, increase yields, and ensure proper resource utilization. Farms should focus on increasing their market share using promotional strategies (social media advertising, referral marketing, and pull marketing) for both existing and potential customers.

The study by Tang et al. [46] examined the factors influencing the competitiveness of agricultural brands. Agricultural products are crucial to the national economy, and a comprehensive analysis of brand competitiveness significantly contributes to supporting structural changes and modernization of agriculture. Regional production bases, along with innovations in brand technology and systems, appear as strong influencers. Based on these findings, the study recommends strategies to improve production bases, define precise developmental trajectories, advocate for technological innovations to support collective reform efforts, and promote institutional progress to support healthy brand growth in the agricultural sector.

6. Conclusions

Our study provides a more detailed insight into the competitiveness of farms, which is specific within Slovakia and V4 countries due to the structure of farms in terms of size and legal form.

Cooperatives often have more, and different, goals and sub-goals compared to other types of companies. Therefore, choosing the right legal form of business in agriculture is crucial for the effective management, financing, and development of agricultural activities. Farmers should consider the legal, tax, and financial aspects of various business forms in this sector.

In the current era of globalization, food security and the development of the agricultural and food sectors are determining factors for the stability of every economy. The agriculture of each country requires support for its functioning, as agricultural production is considered a risky type of business activity. Often, the development of enterprises in the agrarian sector is insufficient, which is a consequence of ineffective mechanisms for managing their development and competitiveness. The existence of competitive advantages is a fundamental aspect for increasing the level of competitiveness and the proper optimization of their functioning under conditions of uncertainty [47]. Competitive agriculture should ensure the country’s food security and contribute to the effective development of rural areas [17].

The legal form of a company should not be the sole criterion for receiving subsidies; however, it is important to clarify that the skillfulness and abilities of management, regardless of the legal form, contribute to better acquisition of financial resources and also enhance the company’s competitive position in the market. The most general feature of any economic activity is decision-making. Proper management and implementation of the decision-making process at the level of a farm should include organization and operation aimed at higher productivity and maximum profit. Effective farm management is a key concept for increasing the competitiveness, productivity, and profitability of any agricultural enterprise.

This study confirmed an increase in competitiveness with the receipt of subsidies for both cooperatives and non-cooperatives. However, the issue of competitiveness remains due to better-subsidized commodities from abroad. Therefore, achieving a balanced state of subsidies for individual EU countries and eliminating discrimination against Eastern European countries is very necessary. On the other hand, consideration should also be given to shifting a larger portion of funding from direct payments to non-project measures. Slovak agriculture lacks innovation and investment, which would significantly help increase farm productivity and the added value of production. Strengthening producer groups is also a beneficial solution regardless of the type of legal form. Such associations optimize costs by investing in shared warehouses, collection lines, and common sales centers, thereby being able to present their products much more effectively.

The above results need to be considered in the context of the study’s limitations. The primary limitation is the data being available only up to 2019, a period that includes the outbreak of the COVID-19 pandemic and the significant impact on the Slovak economy from other exogenous shocks (such as the military conflict in Ukraine and the energy crisis). Data from 2020 onwards were requested from the Ministry of Agriculture and Rural Development of the Slovak Republic, but the methodology for data collection was changed, making it incompatible with the database from the previous period. Another limitation was the research sample, which, although large, faced constraints in conducting panel data research, as we examined a 16-year period during which some companies changed their legal form or location, some ceased operations, and others were newly established. In future research, after obtaining data from 2020 onwards, we would like to examine the state of competitiveness of Slovak farms in the context of the impact of recent significant exogenous shocks.