Comparative analysis of energy costs on farms in the European Union: A nonparametric approach

Abstract

A rational and efficient use of the various sources of energy available to farms allows, not only for cost cutting, but also, a reduction in the environmental impacts bringing positive externalities and contributions toward sustainability. Of course, this efficiency depends on several factors that may influence the dynamics and performance of the farms in question which may also change spatially between countries and regions. These questions related to the great diversity of realities in the agricultural sector are especially relevant within the European Union (EU) context. In this framework, the main objective of the research presented here is to make an efficiency analysis of energy costs in farms across EU countries and regions, stressing possibilities of savings and taking into account the several realities. For this purpose, data at farm level from the Farm Accountancy Data Network (FADN) was considered for the period 2014–2016 which were then explored through the nonparametric approach Data Envelopment Analysis (DEA). For the nonparametric analysis the Cobb-Douglas model was considered as a base. In this way, the total production (euros) was considered as output. Paid labour (hours), the total fixed assets (euros) and the energy costs (euros) were considered as inputs. In an alternative attempt to take into account the different realities across the EU countries the statistical information in monetary units was corrected by the Price Level Indices and was deflated by the Harmonised Indices of Consumer Prices. Furthermore, to alternatively consider the diversity of contexts of the farms from the EU, the several regions and countries here were clustered through cluster analysis, after factor analysis so as to avoid problems of collinearity. As main insights, it is worthy of stressing the possibilities of significantly reducing the costs of energy consumption in farms from many EU regions. For example, it is possible to reduce the costs of energy use by about 55% in Pohjanmaa (Finland), 53% in Cyprus, 56% in Makedonia-Thraki (Greece), 52% in Thessalia (Greece), 56% in Puglia (Italy) and 53% in Basilicata (Italy). In these contexts the Common Agricultural Policy (CAP) should play a determinant role.