Dynamic efficiency in Lithuanian cereal farms

Abstract

Lithuanian family farms are subject to both production and investment support under the Common Agricultural Policy. As a result, there have been structural changes in the sector. Therefore, it is important to analyse farm performance from an adjustment cost perspective. The dynamic efficiency measures encompass multi-temporal cost minimisation. This paper addresses the following problem: what are the key trends in dynamic efficiency and what are the implications thereof on further development of cereal farming in Lithuania? The present paper aims to identify the prospective paths for development of Lithuanian cereal farms by analysing their dynamic efficiency. Data Envelopment Analysis is applied to calculate technical efficiency scores under different assumptions regarding returns to scale. The results indicate pure technical inefficiency remained as the main source of the overall technical inefficiency with scale inefficiency increasing throughout 2004–2014. A more detailed analysis showed that it was smaller farms that suffered from losses in the pure technical efficiency to the highest extent. The exit of the smaller cereal and oilseed farms, therefore, has likely contributed to the decreasing technical inefficiency, yet it has dampened scale efficiency.