FRONTIER PRODUCTION FUNCTIONS AND THE MEASUREMENT OF TECHNICAL EFFICIENCY

A measure of relative producer performance is often useful for policy purposes and the concept of economic efficiency provides a theoretical basis for such a measure. Yet several authors argue that the concept of efficiency and conventional efficiency measures are meaningless for the evaluation of real-world performance. This paper examines some of the issues and argues that producers' performance may be measured using the concept of technical efficiency. Alternative technical efficiency measures are examined including those of Timmer (1971) and Kopp (1981). A frontier production function is estimated for a cross-section of North West farms and these two measures are computed under various assumptions on the fixity of agricultural inputs.     

Farm size and the determinants of productive efficiency in the Brazilian Center-West

This paper explores the determinants of technical efficiency, and the relationship between farm size and efficiency, in the Center-West of Brazil. This is the region where agricultural production and total factor productivity have grown the fastest since 1970. It is also a region characterised by unusually large farms. Technical efficiency is studied with Data Envelopment Analysis and county level data disaggregated by farm size and type of land tenure. The efficiency measure is regressed on a set of explanatory variables which includes farm size, type of land tenure, composition of output, access to institutions and indicators of technology and input usage. The relationship between farm size and efficiency is found to be non-linear, with efficiency first falling and then rising with size. Type of land tenure, access to institutions and markets, and modern inputs are found to be important determinants of the differences in efficiency across farms.     

The Influence of Labor Price Change on Agricultural Machinery Usage in Chinese Agriculture

The substitution between rural labor and machinery has been a key determinant of farm production, structure, and efficiency in most developed countries and is expected to play a key role in shaping the future of Chinese agriculture. Using disaggregated farm‐level data from Hebei and Shandong provinces of China, we calculated the Allen and Morishima elasticities of substitution between labor and machinery. These elasticities were based on seemingly unrelated regressions and three‐stage least squares estimates of the translog cost function and input cost share functions. In contrast to previous studies, we dissaggregate machinery inputs into three categories: large, medium, and small. In addition, the issue of endogeneity in output quantity and input prices is also addressed. The results show strong evidence of substitution between labor and the three categories of machinery inputs. The findings also support substitution among the three categories of machinery themselves.     

Measuring agricultural total factor productivity in China: pattern and drivers over the period of 1978‐2016

The Chinese agricultural sector has experienced a substantial increase in total output since dramatic reforms were introduced in 1978. This paper uses the index method to measure agricultural total factor productivity (TFP) for China’s crop and livestock industries, based on the gross output model from 1978 to 2016. We construct production accounts for the industries using input‐output relationships for the 26 main agricultural commodities and commodity groups, which account for over 90 per cent of the total agricultural inputs and outputs. The results show that China’s agricultural TFP grew at a rate of approximately 2.4 per cent a year before 2009, which is comparable to the main OECD countries and is double the world average. TFP growth accounts for approximately 40 per cent of output growth, suggesting that input growth was the main driver of output growth in the past. However, average productivity growth slowed down after 2009 though it has gradually recovered since 2012. The slowdown reflects the emerging challenges to existing farm production practices in Chinese agriculture, suggesting the need for further institutional reform.     

Specialization,diversification, and productivity: a panel data analysis of rice farms in Korea

This article examines the microeconomics of productivity associated with specialization/diversification in production activities, with an application to Korean rice farms. Korean rice farms tend to be very small and highly specialized. Our analysis examines the productivity effects associated with both farm size and farm specialization/diversification in Korean agriculture. Relying on farm‐level panel data, the analysis studies farm productivity in a multi‐input multi‐output context, accounting not only for changes in inputs and technical change in rice production, but also for the role of diversification in the production of other crops in current and previous periods. We find positive but small productivity gains from farm diversification. These gains come mostly from complementarity effects across farm outputs, with minimal effect of scale economies. The positive complementarity effects work against nonconvexity effects, which provide strong productivity incentives for rice farms to specialize.     

Production Risk and Technical Efficiency in Organic and Conventional Agriculture – The Case of Arable Farms in Germany

This paper quantifies the importance of production risk and technical efficiency as two possible sources of production variability in German organic and conventional farming. Determinants of production risk and inefficiency are investigated based on a combination of Just and Pope’s stochastic production framework and a Stochastic Frontier Analysis. The empirical analysis is conducted using a balanced panel of farm records from 1999/2000 to 2006/2007 on 37 organic and conventional arable farms, respectively. Euclidian‐Distance‐Matching is used to identify for each organic farm a conventional counterpart with similar structural features. Results indicate that output variability in both production technologies is mainly caused by production risk. Land and labour are identified as risk‐increasing inputs in both farm types whereas higher capital endowment, seed costs and soil quality have risk‐reducing effects.     

Productivity and farm size in Australian agriculture: reinvestigating the returns to scale

A positive relationship between farm size and farm productivity is often considered to be largely due to increasing returns to scale in farm production. However, using farm‐level data for the Australian broadacre industry, we found that constant or mildly decreasing returns to scale is the more typical scenario. In this study, the marginal returns to various farm inputs are compared across farms with different sizes. We found that large farms achieved higher productivity by changing production technology rather than increasing scale alone. The results highlight the disparity between ‘returns to scale’ and ‘returns to size’ in the industry, suggesting that productivity improvement among smaller farms can be made through increasing their ability to access advanced technologies, rather than simply expanding their scale.     

An application of IDEA to wheat farming efficiency

Data Envelopment Analysis (DEA) is a nonparametric approach to evaluating the relative efficiency of decision making units (DMUs) that use multiple inputs to produce multiple outputs. An assumption underlying DEA is that all the data assume the form of specific numerical values. In some applications, however, the data may be imprecise. That is, all the input and output data cannot be exactly obtained due to the existence of uncertainty. They are only known to lie within specified intervals. A DEA model with imprecise data or, more compactly, an Imprecise DEA (IDEA) model proposed in this article to evaluate efficiency for each DMU. The article is illustrated with an application to Iranian wheat producer provinces.     

Farms’ technical inefficiencies in the presence of government programs*

We focus on determining the impacts of government programs on farms’ technical inefficiency levels. We use Kumbhakar's stochastic frontier model that accounts for both production risks and risk preferences. Our theoretical framework shows that decoupled government transfers are likely to increase (decrease) DARA (IARA) farmers’ production inefficiencies if variable inputs are risk decreasing. However, the impacts of decoupled payments cannot be anticipated if variable inputs are risk increasing. We use farm‐level data collected in Kansas to illustrate the model.     

Eco‐efficiency of high‐yielding variety rice cultivation after accounting for on‐farm environmental damage as an undesirable output: an empirical analysis from Bangladesh

This study computes the eco‐efficiency of high‐yielding variety (HYV) rice production by including an on‐farm environmental damage index (OFEDI) as an undesirable output using data envelopment analysis. It then identifies its determinants by applying an interval regression procedure on a sample of 317 farmers from north‐western Bangladesh. Results reveal that the mean level of the OFEDI‐adjusted production efficiency (i.e. eco‐efficiency) is 89 per cent, whereas ignoring OFEDI adjustment (i.e. with OFEDI = 0) reduces the mean level of efficiency to 69 per cent, implying that the production of undesirable output or on‐farm environmental damage induces an efficiency loss of 20 per cent with significant differences across regions. The proportion of farmers’ income from HYV rice agriculture, land ownership, extension services and socio‐environmental living standard are the significant determinants of improving eco‐efficiency. Policy implications include investments in extension services and land reform measures to increase land ownership, which will synergistically improve eco‐efficiency of HYV rice production in Bangladesh.     

TOTAL FACTOR PRODUCTIVITY IN UK AGRICULTURE, 1967-90

Indices of total factor productivity (TFP) measure aggregate output per unit of aggregate input, providing a guide to the efficiency of agricultural production. This paper outlines the relationship between production functions and TFP indices. An index for the period 1967-90, constructed from the UK aggregate agricultural accounts, shows that TFP grew at an average rate of 1.9% per annum and that TFP growth has increased since the UK joined the European Community. At the aggregate level, this change seems to be explained by increased aggregate output and decreased aggregate input, in about equal proportions. Disaggregation shows the intensification effect of the CAP price regime. There has been rapid growth in the output of farm crops, relative to other enterprises, and in the use of agricultural chemicals.     

PRODUCTION RISK AND INPUT USE: PASTORAL ZONE OF EASTERN AUSTRALIA

Few attempts have been made to estimate production functions for the Australian grazing industries. The question of the nature of the effect of input levels on production risk has been broached even more rarely. Previous investigators had to employ models and methods of estimation which embody highly restrictive implicit assumptions about the nature of risk effects. A typical restrictive feature has been the implication that increasing input intensity leads to increasing risk. In this paper, a much less restrictive model and corresponding estimation techniques are brought to bear on individual farm data for 38 properties with 10 continuous years of production records. Perhaps not surprisingly, it is found that some inputs (especially those capital inputs which might normally be thought of as increasing the safety of production) tend to reduce risk.     

The influence of management characteristics on the technical efficiency of wheat farmers in eastern England

Technical efficiency of wheat farms in eastern England is measured through the estimation of a stochastic frontier production function using panel data for the 1993–1997 crop years. Variations in the technical efficiency index across production units are explained through a number of managerial and farm characteristic variables following Battese and Coelli (1995) [Empirical Econ. 20, 325–332] and incorporating the spirit of Rougoor et al. (1998) [Agric. Econ. 18, 261–272]. The technical efficiency index across production units ranges from 62 to 98%. The objectives of maximising annual profits and maintaining the environment are positively correlated with, and have the largest influence on, technical efficiency. Moreover, those farmers who seek information, have more years of managerial experience, and have a large farm are also associated with higher levels of technical efficiency. Future studies that seek to explain variation in technical efficiency should include further aspects of the managerial decision‐making process.     

Quantifying the socio-economic determinants of sustainable crop production: an application to wheat cultivation in the Tarai of Nepal

This study specifies a procedure to quantify the determinants of sustainable crop production, and applies the method to wheat cultivation in the Tarai of Nepal. Three aspects of sustainability were considered. First, the fertility of the land was found to have deteriorated owing to long-term practices incompatible with soil and drainage conditions. Three-quarters of the farmers had reduced land fertility and for one-third of them the wheat yield was at least 20% lower than for farmers who applied farmyard manure to every crop and adopted a rotation consistent with soil and drainage conditions. Secondly, the study found that it was possible to improve resource-use efficiency in wheat production to give 25% higher production at current levels, type, and quality of farm resources. Resource-use efficiency was significantly related to farm management practices such as crop stand, variety, disease, and land preparation quality, and socio-economic factors such as off-farm job opportunities, poor plot accessibility, and migration. Thirdly, the increasing population pressure on land, decreasing livestock number per cropped area, and diminishing fuel wood sources, significantly reduced farm-based nutrient cycling because farmyard manure had to be used for fuel. This had implications for the higher use of the fossil-based inputs in crop production.     

Is Input Mix Inefficiency Neglected in Agriculture? A Case Study of Pig‐based Farming Systems in England and Wales

The principal concern of this article is the relative importance of input mix as a source of inefficiency. Emphasis in efficiency analysis studies in agricultural production has historically focused on technical inefficiency as a single concept until methodological advances enabled it to be decomposed into pure technical inefficiency and scale inefficiency. But, this advance was insufficient to identify what we consider to be the major source of inefficiency in agricultural production, namely mix inefficiency. We consider that farm enterprises may be particularly susceptible to input mix inefficiency because of restrictions on movement around the frontier isoquant; delays in the adoption of improved technologies embodied in new vintages of production processes; risk as a source of friction in input allocation decisions; and the potential for inconsistency in simultaneously attempting to reach points of allocative efficiency and mix efficiency in input use. We use non‐parametric methods to calculate a Hicks–Moorsteen productivity index using panel data for a sample of specialised pig producers in England and Wales. This index is then decomposed into measures of technology, technical efficiency, scale efficiency and mix efficiency for an input orientation. Results of the analysis show that the estimated mean mix inefficiency (0.736) was substantially larger than mean technical inefficiency (0.975) and mean scale inefficiency (0.957) over the study period.     

Analysing Production Technology and Risk in Organic and Conventional Dutch Arable Farming using Panel Data

This paper compares the production technology and production risk of organic and conventional arable farms in the Netherlands. Just–Pope production functions that explicitly account for output variability are estimated using panel data of Dutch organic and conventional farms. Prior investigation of the data indicates that within variation of output is significantly higher for organic farms, indicating that organic farms face more output variation than conventional farms. The estimation results indicate that in both types of farms, unobserved farm‐specific factors like management skills and soil quality are important in explaining output variability and production risk. The results further indicate that land has the highest elasticity of production for both farm types. Labour and other variable inputs have significant production elasticities in the case of conventional farms and other variable inputs in the case of organic farms. Manure and fertilisers are risk‐increasing inputs on organic farms and risk‐reducing inputs on conventional farms. Other variable inputs and labour are risk increasing on both farm types; capital and land are risk‐reducing inputs.     

Effects of supermarket monopsony pricing on agriculture

Potential effects of alleged monopsony pricing of farm food products by supermarkets on farm product prices, quantities, incomes and land values are assessed relative to competitive behaviour. A long‐run comparative static equilibrium model is used. For export‐competing and import‐competing products, the farm food input supply curve facing the supermarkets is close to perfectly elastic and this limits monopsony behaviour. At the margin, the opportunity to reallocate agricultural land between traded and nontraded farm products means a highly elastic supply function for nontraded food inputs facing supermarkets and very limited monopsony effects.     

Wheat production in Saudi Arabia between feasibility and efficiency

The cultivation of wheat in Saudi Arabia has been claimed to be resource depletable. Huge amounts of high quality inputs, especially water, seeds, and nitrogen fertilizers, have been applied to the sandy Saudi soils to increase productivity. However, the economic feasibility of wheat production has been totally neglected, mainly for political reasons. Classical production functions analysis has not yielded significant conclusions regarding the use of inputs. A 3-year experiment on an educational farm with a soil type representative of the agricultural soil in Saudi Arabia, yielded some interesting results concerning the use of inputs. The findings were obtained through the stochastic dominance efficiency criterion which assessed the efficient levels of seeds, water, and nitrogen fertilizers in wheat cultivation when Production risk was considered.     

Market and Other Factors Affecting Farm Specific Production Efficiency in Pig Production in Vietnam

ABSTRACT

In developing country production environment, farm production efficiency is often measured in terms of on-farm resources and producer characteristics. In this paper we postulate that input and output market related factors also influence farm production decisions hence its efficiency. Stochastic frontier production function was used to assess technical efficiency and its determinants including input and output market variables for a sample of 1962 pig farms in Vietnam with data collected in 1999. There are significant differences in production behavior and efficiency level between the North and the South, among farms producing different breeds, between mixed and specialized farms, between household and commercial farms, and among producers located in different agro-ecological regions. Access to better output market, land size, herd size, and education of household head significantly reduced inefficiency, while access to government supplied inputs, age of household head, female headed households and family supplied crude feeds significantly increased inefficiency in both the regions. The direction of influence on efficiency differs between the two regions for access to credit, proportion of output sold at market rather than at farm gate and family labor supply. Generally, market related factors had more consistent influence on production efficiency in the South of Vietnam where the experience of market economics is longer compared to the North. Policy actions on providing better extension, more timely access to better quality inputs through the private sector, making credit more easily accessible to smallholders and opportunity to sell output at better priced secondary markets are expected to increase productivity and reduce inefficiency.     

Comparative Evaluation of Farm Inputs and Services Networks in New York and Ontario

Use, availability, and satisfaction of 22 farm business services by dairy farm households were compared among four neighboring regions in Ontario and New York to examine the effects of government support policy. The supply management policy applied to milk production in Ontario is associated with different input usage and greater perceived availability of farm inputs and services than more market-oriented policies in New York. Families in both countries tended to be more satisfied with supply and production services and less so with labor and loan services. Since availability of services is correlated with density of production and the level of returns, policy changes that result in fewer producers will ultimately cause satisfaction with farm input services to decline.