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Contributions of Productivity and Relative Price Changes to Farm-level Profitability Change

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  • Amin W. Mugera
  • Michael R. Langemeier
  • Andrew Ojede

Abstract

This article investigates the sources of profitability change at the farm level, by farm size and specialization, with an application to a sample of 256 farms in Kansas from 1993 to 2010. Using the Lowe index method, profitability change is decomposed into changes in total factor productivity and terms of trade. The nonparametric data envelopment analysis method is used to further decompose total factor productivity into technical change and different measures of output-oriented efficiency change. Finally, the system-Generalized Methods of Moments approach is employed to investigate the dynamic relationship between different components of productivity on farm profitability. Results indicate that profitability change is mainly driven by total factor productivity change. The main source of total factor productivity change is technical change. The upward-shifting frontier results in declining technical efficiency. Results point towards the need to support research and development without ignoring efforts to encourage the uptake of existing technologies.

Suggested Citation

  • Amin W. Mugera & Michael R. Langemeier & Andrew Ojede, 2016. "Contributions of Productivity and Relative Price Changes to Farm-level Profitability Change," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(4), pages 1210-1229.
    • Handle: RePEc:oup:ajagec:v:98:y:2016:i:4:p:1210-1229.
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    File URL: http://hdl.handle.net/10.1093/ajae/aaw029
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    1. QI Li & Desheng Ouyang & Jeffrey S. Racine, 2013. "Categorical semiparametric varying‐coefficient models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(4), pages 551-579, June.
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    3. Amin Mugera & Michael Langemeier & Allen Featherstone, 2012. "Labor productivity convergence in the Kansas farm sector: a three-stage procedure using data envelopment analysis and semiparametric regression analysis," Journal of Productivity Analysis, Springer, vol. 38(1), pages 63-79, August.
    4. Yeager, Elizabeth A. & Langemeier, Michael R., 2011. "Productivity Divergence across Kansas Farms," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 40(2), pages 1-11, August.
    5. Mugera, Amin W. & Langemeier, Michael R. & Featherstone, Allen M., 2012. "Labor Productivity Growth in the Kansas Farm Sector: A Tripartite Decomposition Using a Non-Parametric Approach," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 41(3), pages 1-15, December.
    6. Mugera, Amin W. & Langemeier, Michael R., 2011. "Does Farm Size and Specialization Matter for Productive Efficiency? Results from Kansas," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 43(4), pages 515-528, November.
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    2. Sawadgo, Wendiam P. M. & Plastina, Alejandro, 2020. "Drivers of Profit Inefficiency in Iowa Crop Production," ISU General Staff Papers 202001010800001056, Iowa State University, Department of Economics.
    3. Qinan Lu & Xiaodong Du & Huanguang Qiu, 2022. "Adoption patterns and productivity impacts of agricultural mechanization services," Agricultural Economics, International Association of Agricultural Economists, vol. 53(5), pages 826-845, September.
    4. Philippe Jeanneaux & Yann Desjeux & Geoffroy Enjolras & Laure Latruffe, 2022. "Farm valuation: A comparison of methods for French farms," Agribusiness, John Wiley & Sons, Ltd., vol. 38(4), pages 786-809, October.
    5. Kryszak, Łukasz & Herzfeld, Thomas, 2021. "One or many European models of agriculture? How heterogeneity influences income creation among farms in the European Union," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 67(11), pages 445-456.
    6. Ahmad, Shabbir & Shankar, Sriram & Steen, John & Verreynne, Martie-Louise & Burki, Abid Aman, 2021. "Using measures of efficiency for regionally-targeted smallholder policy intervention: The case of Pakistan’s horticulture sector," Land Use Policy, Elsevier, vol. 101(C).
    7. Boehlje, Michael & Langemeier, Michael, 2022. "Potential Payoffs of Precision Agriculture," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2022.
    8. Stefan Wimmer & Johannes Sauer, 2020. "Profitability Development and Resource Reallocation: The Case of Sugar Beet Farming in Germany," Journal of Agricultural Economics, Wiley Blackwell, vol. 71(3), pages 816-837, September.
    9. Łukasz Kryszak & Marta Guth & Bazyli Czyżewski, 2021. "Determinants of farm profitability in the EU regions. Does farm size matter?," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(3), pages 90-100.
    10. S. C. West & A. W. Mugera & R. S. Kingwell, 2022. "The choice of efficiency benchmarking metric in evaluating firm productivity and viability," Journal of Productivity Analysis, Springer, vol. 57(2), pages 193-211, April.
    11. Zhihao Zheng & Shen Cheng & Shida R. Henneberry, 2023. "Total factor productivity change in China's grain production sector: 1980–2018," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(1), pages 38-55, January.
    12. Stefan Wimmer & K Hervé Dakpo, 2023. "Components of agricultural productivity change: Replication of US evidence and extension to the EU," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(3), pages 1332-1355, September.

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