Income differentiation in agricultural holdings and reasons for such differentiation

The analysis of income capacity of farms and factors of production serves the improvement of the rationality of economics in agriculture, and thus contributes to the evolutionary change of its entity-related structure while maintaining the balance between the criteria of social justice and economical management. Making use of income-related function specified for holdings classified into six classes (by the level of ESU), it was determined that the main barrier for a farm to move from lower to higher ESU class is the high diversification of border income of basic production factors. The main reason for such differentiation of income level is the labour factor. Increase in labour efficiency contributes to the improvement of economic effectiveness of farms, but also results in the decrease of the number of jobs in agriculture, which confirms – to some extent – the gap between the individual interest of the owner against the social interest. An economic borderline should be set between a farm and an agricultural holding. Covering farms with state intervention is advisable in order to ensure the implementation of social objectives in a wider perspective