The Agricultural and Forestry Industry in the Czech Republic

The financial lifeline of any company depends on its ability to generate more money that it uses for operation, and labour cost over a relatively long period. Fixed and liquid assets also play an integral role in a company's survival provided there is a healthy balance between the two depending on the trade a company engages (Paramasivan & Subramanian, 2009). Working capital refers to an organizations liquid assets and monies that are used to finance its short term or current goals. It can also be described as a firm's net investment in assets that are necessary to support its daily activities. The working capital of any organization is derived from getting the difference between current liabilities and current assets on a daily basis ("Working capital management", 2016).

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That is, Net working capital = Current assets - current liabilities.

Literature Review

Working capital continually takes different forms such as cash, inventories, and receivables depending on an organization's needs. The effective management of working capital is, therefore, imperative for any organization to maintain smooth operations throughout its operation cycle (Nobanee, n.d.). Additionally, it helps in mitigating the cost of capital. The cost of capital refers to monetary resources used up while maintaining the working capital. Finally, working capital management is crucial in maximizing the return on current investments ("Working Capital Management", 2015). On the other hand, organizational performance refers to the metrics applied to find the amount of value the organization has achieved. This value pertains to parameters that include but not limited to strategic objectives, organizational structure, business performance measures, allocation of resources and processes, and reward structures (James, 2016). Consequently, organizational performance is a culmination of different variables that have to align for the organization to achieve optimum performance.

Similar to treasuries in the global economies, the Treasury in the Czech Republic deals with cash management issues. This includes management of debts, financing the corporation, control of foreign currency, maintaining healthy inter-bank relationships, and providing necessary support for all these functions (Polak & Kocurek, 2007). Cash pooling and other global trends in banking have had a significant impact in the Czech Republic since the inception in the 21st century (Ambriiko, n.d.). As companies, banks, and investors engaged in transaction-driven business models, institutional and cooperate investors were looked upon to provide financing for major corporate clients and industry players (Petrovic and Solingen, 2005). This financial situation coupled with other macro and micro-environmental factors have forced Agricultural enterprises and forestry industry players to seek new approaches for increasing their competitiveness (Vavrina and Ruzickova, 2012).

Agricultural land including forest land in the Czech Republic accounts for more than half of the country's total acreage with an estimated 54% of the country's land under cultivation and forest cover (Ec.europa.eu, 2016). However, there has been a gradual decrease in agricultural land coverage owing to the struggling economy that has been gradually recovering since 1998, and 2008 economic depressions. The share in agriculture and forestry GDP has dropped to less than 4% translating to a drop in employment rates in the sector of the same magnitude (Ec.europa.eu, 2016). Exports of agricultural produce have stagnated while imports from its biggest trading partner, EU have been gradually increasing (Linkova, 1991).

The agricultural and forestry industry in the Czech Republic is largely privatized and is dominated by very large-scale collective and state farms (Jarsky and Pulkrab, 2013). This has given rise to three major forms of agriculture namely, transformed coops, stock and limited liability companies, and individual farms (Liska, 1992). However, they enjoy similar financial resources in terms of government support and access to credit, the working capital management and organizational performance within these distinct entities has served to distinguish them from each other (Davidova et al., 2003).

The newly formed cooperatives enjoy a bigger market share as far as agricultural, and forestry land is concerned with an estimate 43% control of the industry (Zenka et al., 2015). However, this figure is a fall from the initial figure during the pre-transition period. This has been attributed to their management strategy which relies on constant reshuffling based on voting rights by stakeholders. Their working capital is almost always assured due to the pooling of resources by stakeholders. As such, they end up achieving less organizational performance (Csaki, Debatisse and Honisch, 1999).

On the other hand, stock and limited liability companies have been created from former state farms and property foregone by the cooperatives. These entities are more critical of capital management and organizational performance owing to their limited funds stemming from bank credits and loans (Hlavsa, Urbancova and Richter, 2015). Their management is based on outsourcing as qualified individuals who do not own any of the lands are sought to manage them. Their working capitals stem from profits and as such are forced to have impeccable organizational performance. Examples include Pistachio, and vestus alliance (Swain, 1999).

Individual producers account for less than 20% of the market in the agricultural and forestry sector. They produce for own consumption and local markets. However, more than 90% rely on other sources of income and only supplement this income with agriculture and forestry activities (Mathiis, Blaas and Doucha, 1999). Consequently, their capital management skills are under par as they have access to numerous avenues for financial assistance. However, they achieve very high organizational performance due to the intimate interaction with the different functions involved in the business (Csaki, Debatisse and Honisch, 1999).

References

Ambriiko, R. (n.d.). Growth-Friendly Fiscal Strategies for the Czech Economy. SSRN Electronic Journal.

Cleverism. (2015). Working Capital Management: Everything You Need to Know. [online] Available at https://www.cleverism.com/working-capital-management-everything-need-know/ [Accessed 13 Jun. 2016].Csaki, C., Debatisse, M. and Honisch, O. (1999). Food and agriculture in the Czech Republic. Washington, D.C.: World Bank.

Davidova, S., Gorton, M., Iraizoz, B. and Ratinger, T., 2003. Variations in Farm Performance in Transitional Economies: Evidence from the Czech Republic1. Journal of Agricultural Economics, 54(2), pp.227-245.

Ec.europa.eu. (2016). Agricultural census in the Czech Republic - Statistics Explained. [online] Available at: http://ec.europa.eu/eurostat/statistics-explained/index.php/Agricultural_census_in_the_Czech_Republic [Accessed 13 Jun. 2016].

Ec.europa.eu. (2016). Agriculture - CEC Reports - Czech Republic. [online] Available at: http://ec.europa.eu/agriculture/publi/peco/czech/summary/sum_en.htm [Accessed 13 Jun. 2016].

James, L. (2016). What is Organisational Performance?. [online] Growth.pitcher.com.au. Available at: http://www.growth.pitcher.com.au/resources/articles/what-is-organisational-performance [Accessed 13 Jun. 2016].

Jarsky, V. and Pulkrab, K. (2013). Analysis of EU support for managed succession of agricultural land in the Czech Republic. Land Use Policy, 35, pp.237-246.

Kfknowledgebank.kaplan.co.uk. (2016). Working capital management. [online] Available at http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Working%20capital%20management.aspx [Accessed 13 Jun. 2016].Linkova, E. (1991). Agriculture in the Czech Republic. Ceske Budejovice [Czech Republic]: Ministry of Agriculture of the Czech Republic.

Liska, P. (1992). Czechoslovak Law no. 229 on Land Ownership of 5/91. Washington, D.C.: Eastern Europe Business Information Center.

Mathijs, E., Blaas, G. and Doucha, T., 1999. Organisational Form And Technical Efficiency Og Czech And Slovak Farms. MOCT-MOST: Economic Policy in Transitional Economies, 9(3), pp.331-344.

Nobanee, H. (n.d.). Working Capital Management and Firm's Profitability: An Optimal Cash Conversion Cycle. SSRN Electronic Journal.

Paramasivan, C. and Subramanian, T. (2009). Financial management. New Delhi: New Age International (P) Ltd., Publishers.

Petrovic, B. and Solingen, E. (2005). Europeanisation and Internationalisation: The Case of the Czech Republic. New Political Economy, 10(3), pp.281-303.

Polak, P. and Kocurek, K. (2007). Cash and Working Capital Management In The Czech Republic. Investment Management and Financial Innovations, Volume 4(Issue 1), pp.17-30.

Swain, N., 1999. Agricultural restitution and co-operative transformation in the Czech Republic, Hungary and Slovakia. Europe-Asia Studies, 51(7), pp.1199-1219.

Vavrina, J. and Ruzickova, K. (2012). Agricultural Producers Groups In The Czech Republic: Introductory Review And Discussion Of The Problem Area Economic Performance Measurement. Acta Universitatis Agriculturae Et Silviculturae Mendelianae Brunensis, Volume LX(Number 7, 2012), pp.441-450.

Zenka, J., Zufan, P., Krticka, L. and Slach, O. (2015). Labour productivity of agricultural business companies and cooperatives in the Czech Republic: A micro-regional level analysis. Moravian Geographical Reports, 23(4).