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Financial Exposure, Technical Change And Farm Efficiency: Evidence From The England And Wales Dairy Sector

Author

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  • Hadley, David
  • Shankar, Bhavani
  • Thirtle, Colin G.
  • Coelli, Tim J.

Abstract

This paper fits a translog stochastic production frontier with inefficiency effects to a panel of 693 UK dairy farms for the period from 1982 to 1997. The Cobb Douglas is rejected as inadequate relative to the less restrictive translog functional form and the frontier model is statistically superior to the mean response function, despite the fact that on average the farms were 87% efficient. Technological progress, at 1.7% per annum, is the dominant force, but efficiency declined at 0.8% per year, which reduced productivity growth to 0.9% per annum. The inefficiencies are explained in the second stage of the model, where the greatest cause is financial exposure, captured here by the ratio of debts to assets. Older farmers, those in less favoured areas and owner-occupiers were also less efficient, but large farms were more efficient, which suggests increasing returns to scale.

Suggested Citation

  • Hadley, David & Shankar, Bhavani & Thirtle, Colin G. & Coelli, Tim J., 2001. "Financial Exposure, Technical Change And Farm Efficiency: Evidence From The England And Wales Dairy Sector," 2001 Annual meeting, August 5-8, Chicago, IL 20656, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea01:20656
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    File URL: http://purl.umn.edu/20656
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    References listed on IDEAS

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    1. Catherine J. Morrison Paul & Warren E. Johnston & Gerald A. G. Frengley, 2000. "Efficiency in New Zealand Sheep and Beef Farming: The Impacts of Regulatory Reform," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 325-337, May.
    2. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    3. Chavas, Jean-Paul & Aliber, Michael, 1993. "An Analysis Of Economic Efficiency In Agriculture: A Nonparametric Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), July.
    4. Kumbhakar, Subal C & Ghosh, Soumendra & McGuckin, J Thomas, 1991. "A Generalized Production Frontier Approach for Estimating Determinants of Inefficiency in U.S. Dairy Farms," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 279-286, July.
    5. George E. Battese, 1997. "A Note On The Estimation Of Cobb-Douglas Production Functions When Some Explanatory Variables Have Zero Values," Journal of Agricultural Economics, Wiley Blackwell, vol. 48(1-3), pages 250-252.
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    Cited by:

    1. Langton, Steve, 2015. "Debt and farm performance," 89th Annual Conference, April 13-15, 2015, Warwick University, Coventry, UK 204299, Agricultural Economics Society.
    2. repec:ebl:ecbull:v:4:y:2006:i:15:p:1-9 is not listed on IDEAS
    3. Davidova, Sophia & Latruffe, Laure & Ratinger, Tomas, 2005. "Performance of Different Institutional Units in the Czech Republic and the Role of External Financing," 94th Seminar, April 9-10, 2005, Ashford, UK 24421, European Association of Agricultural Economists.
    4. Andreu, Monica Lopez & Grunewald, Orlen C., 2006. "Sources of Inefficiency in Kansas Farms," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35283, Southern Agricultural Economics Association.
    5. David Hadley, 2006. "Patterns in Technical Efficiency and Technical Change at the Farm-level in England and Wales, 1982-2002," Journal of Agricultural Economics, Wiley Blackwell, vol. 57(1), pages 81-100, March.
    6. Stéphane Blancard, 2006. "Financial Exposure and Productive Performance in French Arable Farms," Economics Bulletin, AccessEcon, vol. 4(15), pages 1-9.
    7. Olson, Kent D. & Vu, Linh, 2009. "Productivity Growth, Technical Efficiency and Technical Change on Minnesota Farms," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49204, Agricultural and Applied Economics Association.
    8. Sophia Davidova & Laure Latruffe, 2007. "Relationships between Technical Efficiency and Financial Management for Czech Republic Farms," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(2), pages 269-288, June.
    9. Andreu, Monica Lopez & Featherstone, Allen M. & Langemeier, Michael R. & Grunewald, Orlen C., 2006. "Impact of Financial Variables on Production in Kansas Farms Efficiencies," 2006 Annual meeting, July 23-26, Long Beach, CA 21406, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Saldias, Rodrigo & von Cramon-Taubadel, Stephan, 2012. "Access to credit and the determinants of technical inefficiency among specialized small farmers in Chile," DARE Discussion Papers 1211, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).

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    Livestock Production/Industries;

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