Evaluating dynamics, sources and drivers of productivity growth at the farm level

Abstract

This report measures and evaluates total factor productivity (TFP) of crop farms in the European Union (EU) in the period after the implementation of a series of important reforms of the EU Common Agricultural Policy (CAP). The analysis covers six EU Member states: the Czech Republic, France, Germany, Hungary, Poland and the United Kingdom. The data used in the analysis are based on the Farm Accountancy Data Network (FADN) data provided by the European Commission. To investigate sources of productivity growth, TFP is decomposed into three components – technical change, scale effect and technical efficiency. Technical change was found to be major source of productivity growth for most country samples for the two analysed periods. Technologies currently applied on crop farms were estimated to exhibit substantial economies of scale and therefore favour large-scale operations. However, economies of scale are not fully exploited which suggests the presence of some institutional constraints on farm growth. Large farms appear to be in a better position to exploit economies of scale; for West European countries covered in the report they were also found to exhibit larger persistent technical inefficiencies. Farm support payments were found to negatively influence crop farm productivity and efficiency of input use. More decoupled payments appear to be less distorting than other forms of support. A meta-level analysis of allocative efficiency shows that farms tend to be overcapitalised but to show relatively low allocative inefficiencies in their variable input use decisions. Substantial allocative inefficiencies appear also to exist in land and labour use. No significant economies of scope were found for the analysed crop production systems and levels of output aggregation. Farm flexibility was revealed to be determined mainly by the scale and convexity effects enabling cost efficient adjustments in the size of farm operations.