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Measuring Productivity Change and Efficiency on Irish Farms.
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2001-01-01
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O'Neill, S., Leavy, A., Matthews, A., Measuring Productivity Change and Efficiency on Irish Farms, End of Project Reports, Teagasc, 2001.
Abstract
This report investigates technical change and levels of technical efficiency on Irish farms
using National Farm Survey (N.F.S.) data. It also examines whether levels of technical
efficiency are influenced by contact with the extension service.
The study utilises a stochastic production frontier approach to measure productivity growth
and the technical efficiency of a panel of Irish farms over the period 1984 to 1998. This
sample was used to calculate (a) technical change over time as measured by best practice
farms and (b) technical efficiency levels of all farms over this period. It, therefore, provides
disaggregated estimates of technical change by farming system as well as quantifying the
average level of technical efficiency. The project also examines the factors associated with
differences in technical efficiency between farms and the impact of extension service contact
on farm-level technical efficiency.
Mean technical change (i.e. changes in best practice) continued, albeit at a declining rate,
throughout the period studied. Significant differences were revealed in the rate of technical
change on farms of different types. For example technical change on dairy and crop farms
averaged nearly 2 per cent per annum while technical regress occurred on beef and sheep
farms.
In addition to examining technical change, farm efficiency relative to best practice within
each farming system was also measured. Results indicate that farms achieved, on average,
approximately 65 per cent of the efficiency level of best practice farms. The average level of
farm efficiency has been decreasing by 0.4 per cent per annum indicating that the gap
between best practice farms and all farms has been increasing by this amount over time.
Thirty one percent of the most efficient farms were dairy farms while 23 per cent were arable
farms. Approximately 52 per cent of the least efficient farms were cattle farms while a further
31 per cent were sheep farms. Average efficiency over the period was 34.2 per cent in the
least efficient quintile of farms. This compared to almost 90 per cent for the most efficient
quintile of farms.
A positive relationship between age and efficiency was found up to the age of 49 years after
which the relationship between age and efficiency becomes negative. The farm debt to assets
ratio was positively related to efficiency while farm size and location in the West of Ireland
was negatively related to efficiency.
Farms in contact with the extension service were found to be on average 6.5 per cent more
efficient than farms without contact. Contact farms with a lower than average dependency on
direct payments were a further 6.6 per cent than contact farms with an average dependency
on direct payments. Contact farms with a higher than average dependence on direct payments
were 1.9 per cent less efficient than the same group of contact farms. However, efficiency on
these farms with a high dependence on direct payments was still, on average, higher than on
farms with no extension contact.