Heterogeneity of Long‐run Technical Efficiency of German Dairy Farms: A Bayesian Approach^*

Abstract

In parametric efficiency studies, two alternative approaches exist to provide an estimate of the long-run efficiency of firms: the dynamic stochastic frontier model and the generalised true random-effects model. We extend the former in order to allow for heterogeneity in the long-run technical efficiency of firms. This model is based on potential differences in firm-specific characteristics and in firms' inefficiency persistence. The model is applied to an unbalanced micro-panel of German dairy farms over the period 1999 to 2009. Estimation of long-run technical efficiency and inefficiency persistence is based on an output distance function representation of the production technology and estimated in a Bayesian framework. The results suggest that heterogeneity in long-run technical efficiency of farms is mostly attributed to discrepancies in farm-specific factors rather than differences in farms' inefficiency persistence. Farm size is positively related to long-run technical efficiency while subsidies exert a negative effect on the long-run technical efficiency of farms. Inefficiency persistence is found to be very high, but heterogeneity in this persistence is low.

Dynamic Inefficiency and Spatial Spillovers in Dutch Dairy Farming

“…Furthermore, Skevas et al . (2018a) use a reduced form dynamic inefficiency model and report an average dynamic inefficiency score of 35% for German dairy farms.…”

Productivity of Czech Milk Production in European Comparison

“…This means that the goal of profit maximization can be achieved by minimizing the cost of producing a fixed (quota) output. According to Skevas et al (2018), output can be assumed exogenous under this optimization condition.…”

“…The current studies focusing on milk productivity in EU countries have provided different results for some aspects of the dairy sector and the same results for other aspects of milk production. Skevas et al (2018) showed that technical efficiency at German dairy producers has declined over time and the change in productivity has been driven by technological change. By contrast, Lansink et al (2015) and Dakpo et al (2019) concluded that the productivity of Dutch and French dairy farms has increased as a result of improvements in technical efficiency.…”

Technical efficiency and economic performance of dairy production in the EU: the role of size

“…This means that the goal of profit maximization can be achieved by minimizing the cost of producing a fixed (quota) output. According to Skevas et al (2018), the outputs can be assumed as exogenous under this optimization condition.…”