Factors Influencing Technical Efficiency in the EU Dairy Farms

Zdeňka Náglová · Tamara Rudinskaya

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Efficiency Analysis Using DEA Agricultural economics and policies Agricultural Economics and Policy

Abstract

This paper aims to analyse the technical efficiency (TE) of dairy farms and find its determinants. To accomplish this problem, the Stochastic Frontier Analysis was applied. The data were obtained from the Farm Accountancy Data Network database for dairy farms (TF15-45—Specialist dairying) for 2004–2019. Dairy farms were divided into four clusters according to their physical size (number of livestock units per farm) and economic size (standard output per farm). The largest farms by physical and economic size are located in Denmark and Cyprus. The smallest, in comparison, are in Bulgaria, Croatia, Latvia, Lithuania, Austria, Poland, Romania, and Slovenia. Farms in the EU are relatively technically efficient, i.e., they use their resources efficiently to produce maximum output (production). However, they have the potential to achieve better economic results and be more competitive, as the size of farms’ is not fully optimised. The abolition of the milk quota can be considered a factor in improving technical efficiency, as the indicator is higher after the abolition. New and old member states have almost comparable technical efficiency levels (the p-value of the t-test is 0.463), with old members having slightly higher level TE. Subsidies have contradictory effects on TE. Farm efficiency with higher subsidies per cow is higher for farms with €51–100/cow. However, as subsidies increase, TE decreases. Only the group of farms with the highest subsidies has a higher TE. More diversified farms are more technically efficient than specialised farms. Milk yield did not influence the analysed indicator. The analysis results can serve the stakeholders as a tool for modelling future agricultural policy, as the European farms are very heterogenous and show different conditions and economic outcomes.

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References

1957The Measurement of Productive Efficiency 1977Formulation and estimation of stochastic frontier production function models 1982On the estimation of technical inefficiency in the stochastic frontier production function model 1951The Coefficient of Resource Utilization 2004Reconsidering heterogeneity in panel data estimators of the stochastic frontier model 2007Metafrontier frameworks for the study of firm-level efficiencies and technology ratios 1951An analysis of production as an efficient combination of activities 1978Measuring the technical efficiency of production

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