Debt as a Source of Financial Energy of the Farm—What Causes the Use of External Capital in Financing Agricultural Activity? A Model Approach

Abstract

The aim of this study was to identify and assess the factors influencing the increase in the financial energy of a farm through the use of external capital, taking into account the farmer’s and farm characteristics. For its implementation, a logistic regression model and a classification-regression tree analysis (CRT) were used. The study was conducted on a group of farms in Central Pomerania (Poland) participating in the system of collecting and using data from farms (Farm Accountancy Data Network—FADN). Data on 348 farms were used for the analyses, obtained through a survey conducted in 2020 with the use of a questionnaire. Based on the analysis of the research results presented in the literature to date, it was established that the use of external capital in a farm as a factor increasing financial energy is determined, on the one hand, by the socio-demographic characteristics of the farmer and the characteristics of the farm, and on the other hand, by the availability of external financing sources. Factors relating to the first of these aspects were taken into account in the study. Using the logistic regression model, it was established that the propensity to indebtedness of farms is promoted by the following factors: gender of the head of the household (male, GEND), younger age of the head of the household (AGE), having a successor who will take over the farm in the future (SUC), higher value of generated production (PROD_VALUE), larger farm area (AREA) and multi-directional production of the farm (production diversification), as opposed to targeting plant or animal production only (farm specialization—SPEC). The results of the analysis carried out with the use of classification and regression trees (CRT) showed that the key factors influencing the use of outside capital as a source of financial energy in the agricultural production process are, first of all, features relating to an agricultural holding: the value of generated production (PROD_VALUE), agricultural area (AREA) and production direction (SPEC). The age of the farm manager (AGE) turned out to be of key importance among the farmer’s features favoring the tendency to take debt in order to finance agricultural activity.

1. Introduction

The interdisciplinary approach to financial energy (cf. [1]) allows for associating it with the general financial condition of the entity [2], which is influenced, among others, by the use of equity and external capital and the treatment of money as a source of energy [3]. Based on Korol [2,4], the paper adopts the concept of “financial energy of a farm” understood as its general financial situation. It mainly consists of having capital that enables agricultural activity, which is both the cause and the consequence of the financial and investment decisions of a given entity. Based on this concept, it was assumed that the use of external capital increases the financial energy of a farm, enabling the implementation of investment projects whose scope exceeds the level of the entity’s equity. The appropriate level of financial energy of a farm is essential to start all processes related to agricultural activity.

The selection of the financing sources necessary to run a business, including agricultural activity, is within the scope of the entity’s financial decisions. In the process of selecting forms and sources of financing, an agricultural holding may use many selection criteria. Opportunities to increase the financial energy of the farm, therefore access to capital, its cost, possibilities and limitations in acquiring are crucial at every stage of farm development. Both the establishment of a farm and its development require funding. Research shows that the lack of access to capital, including external capital, is the most important limitation in starting agricultural activity [5]. It is related to the low financial energy of the farm. Nevertheless, the relatively low use of external capital may also be related to the reluctance of farmers to incur debt [6]. Thus, the use of outside capital makes it possible to increase the financial energy of a farm and is determined, on the one hand, by its availability, on the other hand, the impact on its use is influenced by the farm’s and the farmer’s characteristics, with particular emphasis on behavioral aspects.

The aim of the study was to identify and assess the factors influencing the increase in the financial energy of a farm through the use of external capital, taking into account farmer’s and farm characteristics. Due to the fact that agriculture is one of the key areas of importance in the context of the plan Transforming our world: the 2030 Agenda for Sustainable Development [7], the research thread concerning the factors determining farmers’ tendency to get into debt is considered important. Sustainable development of agriculture requires investments that require capital, including outside capital. Therefore, the investment possibilities of a farm depend on the level of financial energy of a given entity; this energy can be increased by using external capital.

A farm, despite its specific nature, should be treated as an enterprise [8]. However, this specificity significantly affects the farm’s financial energy and the selection of the structure of financing sources. In the case of farmers, the theory of the hierarchy of funding sources and the theory of partial adjustment are the most fully applicable to the explanation of financing decisions. The first one was formulated by S.C. Myers [9]. According to it, enterprises prefer internal sources of financing, and use external sources only when the demand for capital increases. This is due to the fact that there is an information asymmetry that can lead to under-investment, over-investment or value transfer. Sources that are lower on the list of preferences are not used until all the sources higher on that list are exhausted. The theory of the hierarchy of sources of financing emphasizes the importance of the asymmetry of information between the capital giver and the capital buyer, which is also noticeable in the case of entities from the agricultural sector [10]. This theory, however, does not take into account the advantage of outside capital over own capital, resulting from the existence of the financial leverage effect or the tax shield. Due to the specific nature of farm taxation, it is considered that they use the financial leverage effect by supplying their business with external capital when the interest rate on bank deposits is lower than the return on equity [11]. The theory of partial adjustment assumes conscious shaping by farms of the proportion between equity and debt. Benefits from external capital may be higher than from own capital, however, assuming that the tax system in agriculture makes it possible to deduct financial costs from the tax base. Moreover, the asymmetry of information affects the use of equity in the financial strategies of entities from the agricultural sector [8]. The phenomenon of low use of external capital to finance activities is characteristic of agriculture [6,12,13,14,15].

Internal sources are of dominant importance, which are determined by the value of the farmer’s household income (income from agricultural activities and those collected outside of it) and the tendency of farmers to give up current consumption [16]. The research results confirm that farmers are characterized by a relatively high propensity to save, and the accumulated savings are spent primarily on financing investments carried out on the farm [17]. The size, determinants of creation and factors determining income in agriculture are the subject of research by many scientists (see e.g., [18,19,20,21,22,23]). In the context of financing agricultural activity of farms located in the European Union, sources that relate to direct support systems should also be distinguished, because direct subsidies are a significant part of farm income [24,25]. In combination with the possibility of using European Union assistance, they constitute an important source of financing for agriculture [26,27,28]. These activities, together with domestic aid for financing agriculture, according to Zinych and Odening [29], fit into the concept of soft budget constraints [30]. This concept focuses on the state co-financing of various entities, which helps their development. In terms of external capital, farms mainly use bank loans [31,32,33], commercial loans [34,35], leasing [36,37], as well as informal loans, most often family ones [38,39].

Financial energy, including the possibility of using external capital, often determine the investment activity of farmers [29,40]. Research on the use of external financing sources in agriculture emphasizes that difficulties in accessing outside capital result from both the characteristics of the potential borrower and the attitude of the lenders. Conditions for taking out and granting external capital (most often it is a bank loan) are related to the specificity of the functioning of farms, which is expressed in high capital intensity in relation to the sales level and the guaranteed cash surplus; lack of flexibility of owned assets and their strict connection with the farm; long production cycles and difficulties in raising capital on the stock market [41]. Moreover, agricultural holdings exhibit features that cause internal credit limitations of these units. These include farmers’ conservative attitude to external, returnable sources of financing; lack of sufficient knowledge, skills and experience of farmers in using external financing and perceiving institutions granting loans as unfriendly. Farmers also have a fear of indebtedness, resulting from the fact that the purpose of the operation of many units in the agricultural sector is sustainable existence that allows them to meet basic needs, and not maximizing profit or increasing the value of the farm [42].

The literature emphasizes that access to credit and its use in agriculture contribute to the maintenance of food security, rural development, and affect the production volume and increase productivity, and, consequently, determine the level of agricultural income, contributing to poverty reduction [43,44,45,46,47]. Farms with greater financial possibilities also make greater investment expenditures, which contributes to an increase in labor productivity and in land productivity [48].

Among the studies on the factors influencing the use of external capital, the importance of both the characteristics of a farm and the personal characteristics of the person managing it is emphasized. Zulfiqar et al. [46] verified the impact of factors belonging to both of these groups on credit availability. They showed that the factors conditioning access to credit related to the farm manager are: the farmer’s age, education and the fact of having income from outside agriculture, while the characteristics of the farm include: the size of the entity and the level of mechanization. Mądra [49] included the following factors influencing the amount of debt per hectare of agricultural land: the degree of financial leverage, change in the value of equity, inventory turnover, share of net working capital in total assets and the ratio of the ability to generate cash flows from operating activities. In turn, the studies by Kiplimo et al. [50] shows that farmers’ decisions regarding the use of external capital are determined by the following factors: education level, occupation, access to extension services, total annual household income and the distance to the credit source. The first three factors had a positive impact on the access of the surveyed farmers to external sources of financing, while the last two factors had a negative impact. Datta et al. [51], conducting research in this area, proved that principal occupation, use of modern technology, the rate of interest, household medical expenditure and source of loan are significant variables affecting the debt.

The research also shows that a barrier to changing the structure of farm liabilities is the belief that equity is a cheap and safe source of financing [52]. The size of a farm, measured by its area or the value of its production, has a positive effect on the use of external financing sources and the level of debt of a farm [53,54,55,56,57,58]. Having a larger farm gives the opportunity to achieve a higher production value, which increases income. Therefore, it allows both to incur greater investment expenditures from own sources, and to supplement them with outside capital, because it increases creditworthiness, and thus financial energy.

The factor that influences the economic situation of farms, including the production potential and the structure of financing sources, is the specialization of agricultural production. The research results show that farms that focus on plant or animal production use external capital to a greater extent to finance their activities [59,60].

There are also dependencies between farmers’ access to outside capital and the share of non-agricultural income in total farm income. Higher revenues from outside the farm may increase access to credit, which results, among others, from an increase in creditworthiness. This is particularly important in the case of young farmers, therefore age, combined with an increased share of income from non-agricultural activities, has a positive effect on access to external capital and, consequently, also on the increase in farm size, the ability to create economic surplus and productivity of production factors [61]. Wu et al. [62] also draw attention to the fact that incomes from outside the farm can contribute to an increase in creditworthiness and reduce the probability of default. On the other hand, they can be a source of internal financing, thus contributing to reducing the demand for external sources, as proved, among others, by Datta et al. [51].

Apart from the features relating to the farm, the socio-demographic features of the farm manager are of significant importance for the tendency to indebtedness. The age, gender, education, professional status of a farmer and their experience are important in making decisions about the use of outside capital in financing agricultural activities [53,55,58,63,64]. The results of studies on the influence of age on the propensity to incur debt are not clear; however, most of them prove that the farmer’s propensity to use outside capital decreases with age [53,65]. Subash and Ali [64] have shown that the incidence of indebtedness increases with age, but after attaining a certain age, the relationship between age and indebtedness becomes inverse. The older a farmer is, the less inclined they are to make innovative investments, which affects credit constraints. Credit institutions are more willing to grant loans to young farmers [66,67]. It was also found that male-run farms used loans more often [63,64].

The level of education is a determinant of human capital, which is important in independent business management [68]. A higher level of education, as shown by research results, is conducive to the use of external capital [50,55,58], thus contributing to the increase of the financial energy of the agricultural holding. The level of economic knowledge of the decision-making entity in the selection of financing sources is also important. This is related, among others, to financial literacy and financial capabilities of a given entity and their use in the process of making decisions regarding the selection and use of individual financial products and services [69]. Educated people more consciously use the opportunities provided by the financial market; they understand the mechanisms of modern economy to a greater extent, including the role of the credit market, and they want to use it [70]. The condition for making a correct loan decision is, first of all, access to relevant information and having financial knowledge and skills that allow this information to be properly used [71]. In addition, credit institutions may have greater confidence in farmers with higher education due to their greater potential to work in the non-agricultural sector, should the need arise, which will contribute to obtaining additional income to pay off debt [65].

Having a successor who will take over the farm in the future, encourages farmers to increase investment expenditures, which was proved by Wright and Brown [72]. It is related to the expectations of the continuation of agricultural activity, especially for family farms. Thus, this fact should positively influence the tendency to incur debt in order to obtain capital for additional investments. The lack of a successor is one of the barriers to the modernization of agriculture [73]. Harris et al. [74] proved that farms with succession plans have higher profit margins and higher returns to equity, therefore succession planning is positively related to farm business performance. At the same time, it was found that farms which increase financial energy through the use of external capital to finance agricultural activity have higher production and economic results [14].

The rest of the paper is structured as follows. Section 2 presents the survey methodology and data sources. Section 3 presents the results of empirical research. First, the characteristics of the researched farms were established (Section 3.1). Then, the identification of farm characteristics and socio-demographic characteristics of the farm manager were made, which affect the propensity to use outside capital in financing agricultural production, as a form of improving the financial energy of a farm (Section 3.2). For this purpose, a logistic regression model and a classification-regression tree analysis (CRT) were used. The last section summarizes the obtained results and sets out the directions for further research.

2. Materials and Methods

The study uses primary data obtained in the course of a survey conducted in the second quarter of 2020 among farms covered by the European Farm Accountancy Data Network (FADN). The spatial scope of the study covered the area of Central Pomerania (Poland). 361 farms participated in the study, which constitutes 88% of all entities covered by FADN agricultural accounting in the analyzed area. After substantive verification, the results concerning 348 entities were accepted for analysis. The survey was carried out by advisers from Agricultural Advisory Centers through personal contact with the farmer and supplementary telephone contact (Paper & Pen Personal Interview—PAPI and Computer Assisted Telephone Interview—CATI methods). The data obtained concern 2019 (some questions also related to the period from 2004—i.e., from the moment of Poland’s accession to the European Union). A total of 69 questions were included in the questionnaire, divided into three main sections: (A) General information about the household, (B) Information about the financial management of the household, (C) Information about the farm.

The logistic regression model and the classification-regression tree analysis (CRT) were used to identify the features of farms in Central Pomerania which use external capital to improve the financial energy of their agricultural holdings. Based on the results of the logistic regression model, the factors influencing the probability of using external capital by a farm were determined. Then, the classification and regression trees (CRT) analysis was applied, which allowed for the identification of key features of a farmer and a farm affecting the propensity to finance agricultural activity with external capital.

The first method used, logistic regression, allows to study the influence of many independent variables x₁,…,x_k (which can be both qualitative and quantitative) on the dependent variable Y, which is dichotomous (zero-one variable) [75,76]. In this study it was assumed that the dependent variable Y is the use of external capital to finance agricultural activity. This variable, due to its dichotomous nature, takes the value 1 in the case when the researched farm used external capital (130 cases), otherwise the variable takes the value 0 (218 cases).

The probability that an agricultural holding will use outside capital to finance agricultural activity (Y = 1) was determined using the following function [77,78]:

$$Prob\left(Yi=1\right)=\frac{e^{{\alpha }_0+{\alpha }_1{x}_1+\dots +{\alpha }_k{x}_k}}{1+e^{{\alpha }_0+{\alpha }_1{x}_1+\dots +{\alpha }_k{x}_k}}$$

(1)

where: Prob(Yi = 1)—the probability that the dependent variable for an entity with characteristic i will take the value 1; ${\alpha }_0,{\alpha }_1,\dots ,{\alpha }_k$—model parameters; x₁,…,x_k—independent variables.

The selection of independent variables for the logistic regression model was made using the backward elimination method. The model parameters were estimated using the maximum likelihood (ML) method [79]. The significance of the obtained model was verified using the Likelihood Ratio (LR) [79]. The significance of individual model parameters was verified on the basis of z² Wald Test [80]. The Akaike Information Criterion (AIC) was analyzed as the criterion of the model’s optimality [81]. Cox-Snell R², Nagelkerke R² and Count R² statistics were used to assess the fit of the model to the observed data [79,82]. Goodness of model fit was also assessed using the AUC—Area Under Curve index, calculated on the basis of the Receiver Operating Characteristic (ROC) [77]. The Odds Ratio was used to interpret the obtained results of the logistics model [83]. Statistical analyzes were performed using the Statistica 13.3 software.

The second of the methods used in the study, the analysis of classification and regression trees, is used to determine whether objects belong to classes on the basis of measurements of one or more explanatory variables, determining their impact on the qualitative dependent variable Y [84]. Decision trees are a graphic form of presenting possible decisions and their consequences [85]. The analysis of classification-regression trees consists in the sequential partitioning of the L-dimensional space of X^L variables into subspaces R_k (segments), until the dependent variable Y reaches the minimum level of differentiation in each of them, which is measured by the appropriate loss function (more on this topic: [86,87,88]). This partitioning is displayed in a tree structure which is called a decision tree, with the root node at the top of the tree [89]. In the study, the dependent variable was the use of external capital by a farm to finance agricultural activity. As in the case of logistic regression, this variable can take two values: Y = 1—when the researched farm used external capital to increase their financial energy (130 farms), and Y = 0 otherwise (218 farms). The assessment of the degree of differentiation of the subspace R_k was based on the Gini index [86,90]. In order to obtain a simplified form of a classification and regression tree and to identify the key features influencing the use of external capital by farms, the recursive splitting was stopped before achieving segment homogeneity, for this purpose the FACT—Fast Algorithm for Classification Trees rule was applied for a given object fraction [91]. Cross-validation was used in the classification and regression trees (CRT) analysis [89,92]. Statistical analyses were performed using the Statistica 13.3 software (C&RT algorithm).

The explanatory variables used both in the logistic regression model and in the classification and regression tree analysis were selected on the basis of the literature studies. Eight independent variables relating to the socio-economic characteristics of the farmer and the characteristics of the farm were used to assess the probability tested. Their characteristics and their hypothetical impact—established on the basis of the research results presented in the literature—on the inclination of the researched farms in Central Pomerania to finance agricultural activities with external capital are presented in

Table 1. Set of potential variables adopted for the study.

Variable	Description of the Variable and Its Categories	Expected Sign	Impact Confirmed by Scientific Research
DEB	Dependent variable: Farm debt: yes; no
AGE	Age of the head of the households (years)	−/+	Amjad and Hasnu (2007) [53] Kata (2012) [55] Kumar and Saroj (2019) [65] Subash and Ali (2019) [64]
GEND	Gender of the head of the household: female = 1, male = 2	+	Kata (2013) [63] Subash and Ali (2019) [64]
EDU	Education of the head of a household: 1—basic; 2—basic vocational; 3—secondary; 4—post-secondary; 5—higher	+	Kata (2012) [55] Kiplimo et al. (2015) [50] Chandio et al. 2020 [58]
EDU_EC	Economic education of the head of the household: yes; no	+	Wałęga (2012) [70] Solarz (2014) [71] Kuchciak (2020) [69]
SUC	Having a successor who will take over the farm: yes, no	+	Harris et al. (2012) [74] Wright and Brown (2019) [72]
PROD_ VALUE	Annual production value of an agricultural holding: ≤PLN 100,000; >PLN 100,000	+	Kata (2012) [55] Zawadzka et al. (2015) [59] Zawadzka et al. (2019) [93]
AREA	Farm area (ha)	+	Kata (2012) [55] Zawadzka et al. (2015) [59] Strzelecka et al. (2018) [94] Subash and Ali (2019) [64] Thorat et al. (2020) [57]
SPEC	Farm specialization: yes, no	+	Zawadzka et al. (2015) [59]

Source: Own study based on: [50,53,55,57,58,59,63,64,65,69,70,71,72,74,93,94].

.

3. Results

3.1. Characteristics of the Surveyed Farms

In the surveyed group of farms in Central Pomerania, nearly 38% of entities, apart from equity capital, used external sources of financing for agricultural activities, in order to improve their financial energy. Liabilities constituted on average 14.4% in the structure of financing sources of the analyzed entities. This is confirmed by the results of studies conducted so far on the high degree of self-financing of farms and their low inclination to (see e.g., [6,95]).

Table 2. Descriptive statistics of independent variables considered in the model.

Continuous Variables
Variable	Average			Median				Minimum					Maximum			Standard deviation
AREA	56.75			38.02				0.88					430.00			56.53
AGE	46.93			47.00				23.00					73.00			11.66
Discrete variables
Variable	Average	Number of households in particular classes of net income per one person in a household
		1 basic			2 basic vocational				3 secondary					4 post- secondary		5 higher
		No.	Share		No.		Share		No.		Share			No.	Share	No.	Share
EDU	3.0	15	4.31		123		35.35		129		37.07			10	2.87	71	20.40
Dichotomous variables
Variable						Occurrences 0						Occurrences 1
						No.				Share		No.				Share
EDU_EC						326				93.68		22				6.32
GEND						61				17.53		287				82.47
SUC						177				50.86		171				49.14
SPEC						99				28.45		249				71.55
PROD_VALUE						192				55.17		156				44.83

Note: No.—number of farms; Share—share of farms in total number of farms (%). Source: Own study.

presents descriptive statistics of the variables included in the analysis, on the basis of which, the characteristics of the researched farms were made.

The average area of a farm was 56.57 ha, with half of the studied population having an area not exceeding 38.02 ha. The minimum area of a farm was 0.88 ha, while the maximum area was 430 ha. The surveyed entities were characterized by a higher average area of agricultural land than the average area of a farm in Poland, which in 2019 amounted to 10.95 ha [96]. The most numerous group were farms with a production value between PLN 32.001 and PLN 100,000 (37.8%). Farm whose production value exceeded PLN 500,000 (6%). More than half of the population (55.2%) had a production value not exceeding PLN 100,000. Most entities were clearly focused on plant production—they constituted almost half of the surveyed group. 28.4% of the surveyed units were multi-directional farms, diversifying their production.

The surveyed farms were managed mainly by men (82.5%). The average age of the farm manager was 47 years. With regard to the level of education, it was found that farms managed by managers with secondary (37.1%) and basic vocational education (35.3%) dominated. One in five respondents declared having higher education. It was also noted that 17.5% of the surveyed farmers had economic education. Almost half of the respondents (49.1%) indicated that they have a successor who will take over the farm in the future.

3.2. The Use of External Capital and the Features of a Farm—A Model Approach

Based on the adopted research assumptions, first, a logistic regression model was constructed, in which eight explanatory variables were included (Table 1). Then, using the backward elimination method, successive predictors were eliminated and the assessment of change in the value of criteria adopted for the model quality assessment was made. Finally, two independent variables related to the farmer’s education level were eliminated from the initial model: EDU and EDU_EC, whose impact on the probability of using external capital by the farm, as a source of financial energy, was not statistically significant. Six variables remained in the final model (

Table 3. Results of estimation of model parameters—final model.

Variable	Variable Parameter	Standard Error	z Wald Test	Significance Level	Odds Ratio
AREA	0.012	0.003	16.649	0.000	1.012
AGE	−0.037	0.012	8.951	0.003	0.964
GEND_Male	0.766	0.370	4.300	0.038	2.152
SUC	0.568	0.279	4.141	0.042	1.764
SPEC	−0.678	0.281	5.803	0.016	0.508
PROD_VALUE	1.221	0.277	19.494	0.000	3.392
Intercept	−0.553	0.637	0.752	0.386	0.575
AIC = 384.06 Cox-Snell R2 = 0.228 Nagelkerke R2 = 0.310 count R2 = 0.73 AUC = 0.785 LR = 89.87 (df = 6; p ≤ 0.001)

Source: Own study.

), the matrix of case classification is presented in

Table 4. Matrix of case classification.

Classification of Objects Based on the Logit Model	Real Belonging of Objects		Sum
	${\mathit{y}}_{\mathit{i}}=\mathbf{1}$	${\mathit{y}}_{\mathit{i}}=\mathbf{0}$
${\widehat{\mathit{y}}}_{\mathit{i}}=\mathbf{1}$	75	55	130
${\widehat{\mathit{y}}}_{\mathit{i}}=\mathbf{0}$	39	179	218
Sum	114	234	348

Source: Own study.

.

The estimated model of the probability of financing agricultural activity with external capital is as follows:

Prob(DEB = 1) = Λ(0.012AREA − 0.037AGE + 0.766GEND_Male + 0.568SUC − 0.678SPEC + 1.221PROD_VALUE − 0.553)

where: $\Lambda \left(x\right)=\frac{e^x}{1+e^x}$ logistic distribution function.

Based on the model, 73% of cases were correctly classified (Count R² = 0.73). The quality of the constructed model was assessed on the basis of Cox-Snell R² (0.228), Nagelkerke R² (0.310) and the ROC curve (Figure 1).

The area under the ROC curve (AUC) is 0.785, which indicates a good quality of the constructed model (AUC > 0.5). The LR-statistic value is 89.87 (p < 0.001), the critical value of this statistic for 6 degrees of freedom is 16.81.

The results of the study show that the following characteristics of the farmer had a statistically significant positive impact on the probability of using external capital as a form of improving financial energy by farms in Central Pomerania: gender (GEND_Male) and having a successor who would take over running the farm in the future (SUC), as well as the following characteristics of a farm: farm area in ha (AREA) and annual production value (PROD_VALUE). On the other hand, the farmer’s age (AGE) and farm specialization—targeting one type of crop or animal production (SPEC) had a statistically significant negative impact on the tested probability. The direction of the impact of the variables: AGE, GEND, EDU, EDU_EC, SUC and PROD_VALUE and AREA turned out to be consistent with the assumed one, thus confirming the research results presented so far in the literature (e.g., [50,55,57,58,64,72,74]). In the case of the SPEC variable, the results of our research showed a different than assumed impact of production specialization on the use of external capital in order to improve the financial energy of the farm.

In accordance with the established methodology of the study, in the next stage of the analysis, the key features of the farmer and the farm that affect the propensity to use external capital were identified. For this purpose, classification and regression tree analysis (CRT) was used. The results of the classification of the researched farms in Central Pomerania according to the criterion of using external capital to increase financial energy based on classification and regression trees (CRT) and the importance of independent variables included in the analysis are presented in Figure 2 and Figure 3.

The decision rules are designed in the root (ID 1), branch (IDs: 1, 2, 5, 6 and 9) and leaves (IDs: 3, 4, 7, 8, 10 and 11) views. The tree consists of five shared nodes and six terminal nodes. The certainty of the forecast is 74.7%.

The first split of the studied population was made on the basis of the PROD_VALUE variable. On the basis of this criterion, the surveyed group was divided into two groups: farms with an annual production value of more than PLN 100,000 (ID 2) and those with an annual production value of up to PLN 100,000 (ID 3). It was found that in the case of entities with a lower annual production value, the vast majority (80%) did not use external capital as a form of increasing financial energy. On the other hand, among farms characterized by a higher production value (ID 2), 58% used outside capital. The key variable differentiating the studied population in node 2 (ID 2) was the farm area (AREA). As a result of the classification, two groups were obtained: users of farms with an area of up to 36.37 ha (ID 4)—among them 35% were willing to use outside capital, and users of farms with an area exceeding 36.37 ha (ID 5), of which 66% used outside capital. The split of entities in node 5 (ID 5) was made based on the variable AGE. As a result of the classification, two groups were obtained: farmers aged up to 63.5 years (ID 6) and 69% of them were characterized by a tendency to indebtedness, and farmers aged over 63.5 years (ID 7), among whom only 14% used external capital. Subsequently, farms from node 6 (ID 6) were divided based on the SPEC variable. Among the entities diversifying production (ID 8), 86% used external capital to finance their activities. On the other hand, among specialized farms, 61% were characterized by the use of external capital in order to improve their financial energy (ID 9). Then, the entities from node 9 (ID 9) were further classified using the AREA variable and two groups were obtained: users of farms with an area of up to 165.06 ha inclusive (ID 10) and users of farms with an area exceeding 165.06 ha (ID 11). It was found that specialized units were more willing to use outside capital when they used a farm with an area greater than 165 ha (92% of entities in node 11 were characterized by financing agricultural activities with outside capital).

4. Discussion and Conclusions

The aim of the study was to identify and assess the factors influencing the increase of the financial energy of a farm through the use of external capital, taking into account the farmer’s and farm characteristics. For its implementation, a logistic regression model and a classification and regression tree analysis (CRT) were used. The study was conducted on a group of farms in Central Pomerania (Poland) participating in the system of collecting and using data from farms (FADN). Data on 348 farms were used for the analyzes, obtained through a survey conducted in 2020 with the use of a questionnaire.

Based on the analysis of the research results presented in the literature to date, it was established that the use of external capital as a source of financial energy in a farm is determined, on the one hand, by the socio-demographic characteristics of the farmer (AGE, GEND, EDU, EDU_EC, SUC) and the characteristics of the farm (PROD_VALUE, AREA, SPEC), and, on the other hand, by the availability of external financing sources. Factors relating to the first of these aspects were taken into account in the study.

Using the logistic regression model, it was established that the propensity to incur debt of farms is promoted by the following factors: gender of the head of the household (male, GEND), younger age of the head of the household (AGE), having a successor by the head of the household, who will take over the household in the future (SUC), higher value of generated production (PROD_VALUE), larger farm area (AREA) and multi-directional production of a farm (production diversification), as opposed to targeting plant or animal production (SPEC). The results of the analysis carried out with the use of classification and regression trees (CRT) showed that the key factors influencing the use of external capital in the agricultural production process are, first of all, features relating to an agricultural holding: the value of generated production (PROD_VALUE), agricultural area (AREA) and production direction (SPEC). The age of the farm manager (AGE) turned out to be of key importance among the farmer’s features favoring the tendency to incur debt in order to finance agricultural activity.

Among the surveyed entities of Central Pomerania, the chance of using outside capital is 115.2% higher in farms managed by men than in farms managed by women (ceteris paribus). The direction of this relationship is consistent with the research results presented in the literature [63,64]. It was also established that in the case of farms with a designated successor, the chance of financing agricultural activities with external capital is 76.4% higher in relation to farms where no successor has been designated (ceteris paribus). Moreover, the study proved that the farmer’s age has an influence on the propensity of farms to borrow, and this tendency is higher in the case of younger farmers, which is consistent with the results of the research by Amjad and Hasnu [53]. It was also determined that the propensity to use external capital is also determined by the features relating to the farm. The results of the study show that increasing the farm area by one hectare will increase the probability of using external capital by the farm by 1.2% (ceteris paribus). This is consistent with the results of the studies by Kata [55], Subash and Ali [64] and Thorat et al. [57]. Moreover, in the case of farms whose annual production value exceeds PLN 100,000, the chance of financing agricultural production with external capital is 239.2% higher than in farms characterized by a lower annual production value (ceteris paribus). The direction of the impact of the variables included in the analysis is as predicted, except for the production specialization (SPEC). This means that in the case of the researched farms in Central Pomerania, multidirectional farms, diversifying production, are more likely to use outside capital in financing agricultural activities than those focused on one type of animal or plant production. This is probably due to the development processes of farms in the analyzed area. The data of the General Agricultural Census 2020 show that dynamic changes are taking place in agriculture in Poland, which are manifested by an increasingly stronger specialization of farms, with a simultaneous progressive concentration of agricultural production [97]. The studied farms with a multidirectional production profile use outside capital to a greater extent to finance their activities than units focused plant or animal production, because they are probably in the transformation phase, therefore show greater investment activity, and, to finance their investments, they also involve—apart from equity—external sources of financing thus increasing their financial energy. The verification of this hypothesis will constitute the next stage of research.

The results obtained in the course of the research contribute to both literature and practice. With regard to the first aspect, the presented results constitute a thread in the discussion of factors influencing the decisions of farms in the use of external capital in the agricultural production process. They also confirm the thesis about the high degree of self-financing of farms and their relatively low tendency to borrow (see e.g., [6,95]). Moreover, based on Korol [2,4], the paper proposes a conceptual approach to “financial energy of a farm”, understood as the general financial situation of the farm. It mainly consists of possessing capital that allows for agricultural activity, which is both the cause and the consequence of the determinants of financial and investment decisions of a given entity. With regard to practice—the results of our research may constitute an important source of information, e.g., for financial institutions that deal with preparing offers in the field of external sources of financing for agricultural activities.

The obtained results have become a contribution to determining the direction of further research, which will include, among others, establishing the hierarchy of financing sources for farms and identifying factors that determine it. Assessing farmers’ willingness to use leasing as an alternative to credit as a source of investment financing was also planned, as well as identifying factors determining its use. In the next stage of the research, it was also planned to report on the applicability domain of the developed models according to Roy, Kar and Ambure [98] and de Assis et al. [99]. The models will also be built using $r_m^2$ metrics for validation according to Roy et al. [100] and Gajo et al. [101].

For further research, establishing the importance of using external capital in the process of transformation and specialization of agricultural production is also being planned. This issue is of particular importance in the context of the implementation of target 2.3 of sustainable development [7], which concerns the doubling of agricultural productivity and income of small-scale food producers—thus increasing the financial energy of the agricultural holding, which can be achieved, among others, through the specialization of agricultural production. Also in this context, the financial energy of a farm becomes of great importance, as it can be activated or increased by recapitalization in the form of external capital. This form of energy triggers subsequent processes—both on the micro scale (a farm) and in the resulting macroeconomic processes, including the context of the implementation of global sustainable development goals (SDGs). Agriculture is a sector around which many of the defined SDGs concentrate. This is because farmers manage the vast majority of natural resources. Therefore, activities aimed at eliminating hunger or poverty, as well as those related to environmental protection and adaptation to climate change, are concentrated around them. Thanks to the use of external capital in the farm itself, processes in the form of investment and financial decisions are launched, which improve the financial situation—an increase in the financial energy of the farm, thus improving the financial condition of the farmer’s household (increase in the financial energy of households) [2,4]. Moreover, financial energy is transferred from farms to many entities, changing its form. The importance of farms in the food supply chain should be emphasized here.