Changes in Farm Production in the Context of Overinvestment: A Case Study from Poland

Investments are the development core of every economic operator and the driving force for national economic development. While finding the optimal investment point is extremely difficult, every operator may seek to attain a level of fixed assets which allows them to maintain an increase in production and keep their income flowing. The difficulties in finding this optimum may lead to overinvestment. Hence, this paper estimates the parameters of the production function at various investment levels. Its purpose is to identify the relationship between the investment levels, the use of productive inputs, and growth or decline in production (output) levels. This study used microdata for 3273 Polish farms, as retrieved from the FADN (Farm Accountancy Data Network). The differences found at various farm investment levels allow for highlighting some problematic areas, e.g., in the context of excessive capital use relative to yearly increments in production values. The proposed method of analyzing overinvestment based on the production function can be extended to other countries. According to this paper, farms that invested too little or too much in relation to their production potential showed the worst economic performances, including the greatest declines in production.