Technological heterogeneity, technical efficiency and subsidies in Czech agriculture

Abstract

This paper deals with an analysis of technological heterogeneity and technical efficiency in individual sectors of Czech agriculture after the EU enlargement in 2004. A parametric approach was used-Stochastic Frontier Analysis (SFA) to address the research questions. Specifically, it is employed the Random Parameter Model specification, in which sector dummies are used to capture the intersectoral as well as intrasectoral differences in technology. The results show there is significant heterogeneity among the studied sectors (i.e., combined, plant, animal and other production). The analysis showed that Capital and Material are being substituted more and more for Labour in all sectors, especially in animal production. This result is to be expected, as the technology in this sector is labour-saving. However, it was found out that land elasticity is quite low in plant production and combined production; since Land is a production factor that significantly determines the level of final output, this result is quite strange. One possible explanation may be the policy of distributing subsidies among farmers, when the land is kept but used in a more extensive way. The intrasectoral differences in technology are statistically significant for all inputs. Average technical efficiency is highest in other production and lowest in animal production, while it is approximately at the same level in plant production and combined production. It was discovered that diversification (combined production) of activities lowers the level of technical efficiency compared to specialisation (plant production), but on the other hand it does allow for alleviation of the negative impacts of specialization (animal production) by optimizing the production program. Finally, the analysis did confirm a statistically significant positive relationship between SAPS subsidies and technical efficiency. Organic farming has a negative impact on technical efficiency and the influence of labour force quality is positive. The statistical significance of TOP UP subsidies as well as the localization of the company to LFA have not been proved.

Estimation of technical efficiency of Czech farms operating in less favoured areas

“…The farms that operate in LFA mountain areas have the lowest technical efficiency. However, Matulova and Cechura (2016) did not prove the statistically significant relationship between technical efficiency and farm location. The authors explained this fact by the subsidies that were applied more efficiently by agricultural companies located in LFAs.…”

“…Since the heterogeneity of farms had been proven by many studies (Cechura 2010;Matulova and Cechura 2016), True Random Effects model was chosen as an appropriate tool.…”

“…Using the SFA (Stochastic Frontier Analysis) approach the author concluded that significant differences between efficiency and farm size exist only for the technical efficiency of farms with more than 1 000 ha. Matulova and Cechura (2016) investigated differences in the TE of farms located in LFA and non-LFA and concluded that there is no statistically significant relationship between technical efficiency and the farm location. The authors explained this fact by pointing to subsidies, which were applied more efficiently by agricultural companies located in the LFA.…”

Drivers of farm performance in Czech crop farms

“…Since heterogeneity of farms has been proven by many studies (Matulova and Cechura 2016), the TRE model was chosen as an appropriate tool assuming that the impact of the components may vary from one farm to another (Coelli et al 2005).…”