Value drivers of multifunctional and sustainable agricultural organisation: cash flow discounting approach

Abstract

Valuation of any business organisation is important for the owners, creditors, state, and other stakeholders in order to assess it as a working economic entity for sale, exchange, mortgage, supporting, and other purposes. Under the principle of market efficiency, business organisation should be sold, exchanged, mortgaged at a fair value. The measurement of the fair value of agricultural organisation using cash flow discounting approach is problematic due to the different nature of cash flows and discount rates. The present agricultural organisation generates free cash flows not only from agricultural production and services but also through the multifunctionality of agriculture, the provision of public goods and ensuring the sustainability of economic development. The authors of the paper present the model of value drivers of multifunctional and sustainable agricultural organisation. They reason that free cash flows from agricultural production and services, and subsidies and grants for increasing farms’ efficiency and for business diversification in rural areas should be discounted at a weighted average cost of capital. Benefit and costs in providing public good should be discounted at a social discount rate.