Measuring Productivity Change and Efficiency on Irish Farms.

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.