Agglomeration externalities and technical efficiency in pig production

The objective of the paper is to assess the effects of agglomeration on technical efficiency of French pig farms. The increasing concentration of pig production in western France is a typical example of how agglomeration externalities may have positive effects on farm performance in particular. However, negative externalities implied by concentration have lately appeared. They are due to increasing competition for land following the introduction of a law governing polluting activities according to which pig producers need to have a minimum area available where their manure can be spread. We use a two-stage method, where the first stage consists in calculating pig activity's efficiency scores with the non-parametric method Data Envelopment Analysis (DEA), and the second stage is a truncated regression of these scores on agglomeration variables. Data are for one thousand French pig producers in 2004, provided by the French Institute of the Pig Sector (IFIP). Results suggest that French pig producers were affected by both positive and negative agglomeration externalities at this period. Positive externalities are in the form of knowledge spillovers facilitated by the proximity of farms, and in the form of closeness to downstream market. Negative externalities suggest that agglomeration constrains farmers in their land demand due to legal disposition relating to manure spreading.