Assessment of financial distress in agricultural cooperatives in Latvia applying the prevention system indicators

Cooperation and financial stability of agricultural companies, especially small and medium ones, is very significant for the development of agricultural sector. In Latvia, cooperatives represent different sizes and industries: dairy, grain, fruit and vegetable, forest, agricultural services and home production. The research aim is to assess financial distress in agricultural cooperatives in Latvia by applying the prevention system indicators. The evaluation of financial indicators is based on the methodology developed by Deutscher Raiffeisenverband e.V. (DRV) - the leading association of agricultural and food industry cooperatives and cooperative-oriented companies in Germany. This system prescribes reporting and monitoring requirements for cooperatives to perform the preventive case analysis to ensure a successful operation of a cooperative or to prevent financial problems, if any. Therefore, financial indicators of cooperatives in Latvia were analysed adapting the DRV analysis methodology to the situation of Latvia to identify cooperatives requiring support to ensure viability. The evaluation of cooperatives by the number of employees, assets, sales and other financial indicators convincingly demonstrates that the largest and most financially strong cooperatives in Latvia operate in the grain sector, followed by the dairy sector. The assessment of financial distress reports that 10 out of 51 analysed cooperatives experience risk of operation. The most common threat to a cooperative in Latvia is related to its equity; however, it is recommended to evaluate this indicator in line with other indicators, for example, changes in equity in recent years and length of a cooperative’s operation.