Effects of scale, intensity and farm structure on the income efficiency of Irish beef farms

Abstract

Data envelopment analysis (DEA) was employed to develop a model of income and scale efficiency for Irish beef farms. The objective was to identify and quantify management, farm structural and intensity indicators of efficiency for over 400 representative farms over two production systems and two years. Bootstrapping techniques were employed to measure and correct efficiency scores for sampling bias. Less than 10% of the sample exhibited constant or increasing returns to scale. The remaining farms exhibited decreasing returns to scale meaning that they were larger than optimal scale. Greater income efficiency was associated with lower levels of concentrate feeding and lower overhead costs per livestock unit (LU). Fragmentation, paid labour and capital investment were significantly negatively associated with income efficiency. There was a positive relationship between market gross output per LU and income efficiency. Negative market net margins tended to be subsidised by greater off-farm income on smaller (more scale efficient) farms and by greater direct payments on larger (more scale inefficient) farms. Consequently, prospects for increasing beef output via scale expansion are negative in an external environment of declining subsidies and reduced off-farm employment in rural areas. Increased output from Irish beef farms must therefore come primarily from farm system structural changes rather than scale changes, otherwise farm income efficiency will decline.