Epsilon Archive for Student Projects

Abstract

This thesis develops an understanding of how Swedish beginning farmers choose between different
sources of financing and examine how these preferences could be used in assessing a new alternative
financial solution to facilitate farm successions. This has been done through a qualitative case study
were six young farmers in the region of Mälardalen, facing a generational renewal, have been
interviewed. The new alternative financial solution assessed is a hybrid loan developed by a Swedish
start-up company, Gårdskapital. Agency theory and the Pecking order theory are theories used to
give guidance in understanding the empirical findings. A net present value calculation is also made
to further strengthen the analysis of the novel funding solution.
Farmers in the EU are getting older and fewer young people are interested in becoming a farmer due
to several financial and socioeconomic aspects. Research shows that the different aspects constitute
a so-called young farmer problem in the EU that leads to fewer farm successions. The land
distribution moving the ownership from farmers to corporates or governments are also affecting the
generational renewal process and makes it harder for farmers to compete on the land prices. The
poor access to finance, due to low to zero track record of farming and low equity serve as other
barriers to entry for young prospective farmers. These entry barriers are prominent in Sweden too,
where the bank regulations are stricter than EU average. The issues of having difficulties in
accessing finance and the fact that a successful farm succession is based on an unfair monetarily
compensation opens for investigating alternative financial solutions that cater the social values of
ownership and which does not add on to the financial stress for the inheritor.
The respondents of the study emphasised the need for external financing and the impossibility of
acquiring the farm to market value and monetarily compensate their parents and siblings. Although,
ownership was seen as crucial to the willingness of taking over the farm due to less agency problems
and the access to future finance.
The study finds that the drivers for ownership of farmland is connected to social values rather than
direct financial incentives due to agency problems connected to the leasing of farmland and that it
may be less financially risky for the farmer to take a hybrid loan, but that it will have long-term
effects on the LTV. Further, the current generation and siblings may have to accept an unfair
monetary compensation if the social values of keeping the family farm exceeds the monetary value.