Performace of Czech dairy farms in contex of agricultural policy

Czech agriculture experienced a couple of important institutional and structural changes in the last two decades. These changes were predetermined by the accession of the Czech Republic to the European Union, an event which significantly influenced the performance, structure and size of Czech agriculture and had various impacts on specific sectors. The development in dairy sector after 2004 can be characterized by a reduction of cows, a growth of a milk yield, capital market imperfections, a high dependency of local farm price on world market price development, an increase of share of milk produced on specialized dairy farms and the strong dependency of farm performance on policy measurement, namely quotas and subsidies. An objective of the research is to evaluate the development of Czech dairy farms profitability and its main determinants. More specifically, the presented research examines the dynamics of productivity and profitability in the context of agricultural policy change. It is also focused on the extension of profitability decomposition modelling by policy measurements. The development of profitability and its determinants will be based on parametric econometric approach introduced in Kumbhakar and Lien (2009) and extended by Sipiläinen, Kumbhakar and Lien (2013). Their approach decomposes profitability into the output growth component, the output price component, the input price change component, the technical change component, the scale component, the mark-up component and the technical efficiency change component. Policy measurements are not included in this approach however subsidies and quotas influence production in several ways, e.g. by their effect on productivity and technical efficiency (Hadley, 2006; Zhu and Oude Lansink, 2010; Latruffe, 2010; Bokusheva, Kumbhakar and Lehmann, 2012). The presented research will link-up mentioned approaches. The research will be based on unbalanced panel data of Czech dairy farms-local entities gained from Albertina Databases from 2004 to 2013.The performance of Czech farms has been analysed in a number of studies. The profitability was evaluated by Chandrapala and Knápková (2013), Lososová and Zdeněk (2014). Machek (2013), Machek and Špička (2013), Čechura (2012), Curtiss and Jelínek (2012), Malá (2011), Blazejczyk-Majka et al. (2011), Svoboda and Novotná (2011) analysed the productivity and technical efficiency. However, only a few sector-specific studies can be found in the Czech Republic (Špička and Smutka, 2014; Čechura, Hockmann, Kroupová and Malý, 2014; Doucha, Foltýn and Humpál, 2012; Perný and Kubíčková, 2011; Foltýn, Kopeček, Zedníčková and Vávra, 2009) and they usually suffer from a lack of data availability. That is, our research fills the gap in sector-specific research of farm performance. From the result of mentioned studies we can suppose that the profitability of dairy farms decreased during the first part of analysed time period (2004-2009). After the year 2009, the profitability is supposed to increase by the positive effect of technical change and also by the investment subsidies. However, this increase is probably still negatively affected by scale component and technical efficiency component. The technical efficiency is probably negatively affected by direct payments.