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A metafrontier approach to measuring technical

efficiencyThe case of UK dairy farms

Andrew Barnes*, Cesar Reverado-Giha*, Johannes Sauer+

• Land Economy and Environment Group, SAC, Edinburgh• +Department of Economics, University of Manchester

122nd European Association of Agricultural Economists Seminar

Evidence-Based Agricultural and Rural Policy MakingMethodological and Empirical Challenges of Policy Evaluation

February 17th – 18th, 2011, Ancona (Italy)

associazioneAlessandroBartola studi e ricerche di economia e di politica agraria

Centro Studi Sulle Politiche Economiche, Rurali e AmbientaliUniversità Politecnica delle Marche

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Why is important

Accurate measurement indicates efficient resource use and hence enters debates regarding food production, climate change, wider sustainability issues

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Whole Farm Approach

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Measuring Technical Efficiency

Frontier is drawn using parametric, semi-parametric or non-parametric approaches

Stochastic production frontier technique assumes that the noise can be disaggregated from the technical efficiency effect. Hence the SPF technique is the most commonly used in agricultural studies to compensate for some of the noise in agricultural production

So, though reduces statistical noise it infers that like should be compared with like. However, all farms are different – structures, behaviours, access to resources, quality of resources

One key factor is region....

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

The Role of Regions in technical efficiency measurementPrevious work

– Use region as means to explain some of the deviation from the frontier

– We argue in agriculture, region should be a defining characteristic of the area to be studied

– Comparison between regions is difficult because of a different production technology

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

How do we compare?

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Meta frontier

An overarching function that encompasses the different technologies involved across regions

The model enables the calculation of comparable efficiencies for production under different technologies relative to the potential technology available in the economy as a whole

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Data Requirements and Issues

We take Dairy farms for the UK as an example of the metafrontier approach

Collected by separate administrative regions– England and Wales– Scotland– Northern Ireland

Some differences in attribution of inputs in these data sets, e.g. V&M in E FBS, compiled into other livestock expenses in S FBS.

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

C u m b r i a

N o r t h u m b e r l a n d

D u r h a m

N o r t h Y o r k s h i r e

L a n c a s h i r e W e s t

Y o r k s h i r e S o u t h

Y o r k s h i r e M e r s e y s i d e

C h e s h i r e

E a s t R i d i n g o f Y o r k s h i r e

D e r b y s h i r e L i n c o l n s h i r e N o t t s

T y n e & W e a r

N o r f o l k

S u f f o l k

E s s e x

S t a f f s

S h r o p s h i r e

L e i c s

N o r t h a n t s

B e d s B u c k s

G w y n e d d

P o w y s

G l o u c s

C a m b s

C o r n w a l l

D e v o n

S o m e r s e t

D o r s e t

W i l t s h i r e

H a m p s h i r e W e s t

S u s s e x E a s t S u s s e x

K e n t S u r r e y

C o n w y

O x f o r d s h i r e H e r t s

1 2 3

4 5

6

8 9

1 0

1 1 1 2

1 3 1 6

1 7 1 5

1 4

3 1 3 2

1 8

1 9 2 0 2 1

2 2 2 3 2 4

7

2 5

2 6 2 7 2 8

2 9 3 0

3 3 3 4 3 5

3 6

3 7 3 8

3 9

4 0 4 1

4 2 4 3

4 4

4 5

4 7

4 8 4 6

4 9

5 0 5 1 5 3 5 4

5 5

5 7 5 8 5 9

6 0 6 1

6 2 6 3

6 4

6 5 6 6

6 7

5 6

5 2

1 D a r l i n g t o n 2 S t o c k t o n - o n - T e e s 3 H a r t l e p o o l 4 M i d d l e s b r o u g h 5 R e d c a r & C l e v e l a n d 6 Y o r k 7 C i t y o f K i n g s t o n u p o n H u l l 8 N o r t h L i n c o l n s h i r e 9 N o r t h E a s t L i n c o l n s h i r e 1 0 B l a c k b u r n 1 1 G r e a t e r M a n c h e s t e r 1 2 W a r r i n g t o n 1 3 H a l t o n 1 4 I s l e o f A n g l e s e y 1 5 D e n b i g h 1 6 F l i n t s h i r e 1 7 W r e x h a m 1 8 T h e W r e k i n 1 9 C i t y o f S t o k e - o n - T r e n t 2 0 C i t y o f D e r b y 2 1 C i t y o f N o t t i n g h a m 2 2 W e s t M i d l a n d s 2 3 C i t y o f L e i c e s t e r 2 4 R u t l a n d 2 5 C i t y o f P e t e r b o r o u g h 2 6 H e r e f o r d s h i r e 2 7 W o r c e s t e r 2 8 W a r w i c k s h i r e 2 9 M i l t o n K e y n e s 3 0 L u t o n 3 1 P e m b r o k e s h i r e 3 2 C a r m a r t h e n s h i r e 3 3 S w a n s e a 3 4 N e a t h P o r t T a l b o t 3 5 B r i d g e n d 3 6 R h o n d d a , C y n o n , T a f f 3 7 M e r t h y r T y d f i l 3 8 B l a e n a u G w e n t 3 9 C a e r p h i l l y 4 0 T o r f a e n 4 1 M o n m o u t h s h i r e 4 2 T h e V a l e o f G l a m o r g a n 4 3 C a r d i f f 4 4 N e w p o r t 4 5 N o r t h S o m e r s e t 4 6 C i t y o f B r i s t o l 4 7 S o u t h G l o u c e s t e r s h i r e 4 8 B a t h & N E S o m e r s e t 4 9 S w i n d o n 5 0 W e s t B e r k s h i r e 5 1 R e a d i n g 5 2 W o k i n g h a m 5 3 W i n d s o r & M a i d e n h e a d 5 4 S l o u g h 5 5 B r a c k n e l l F o r e s t 5 6 G r e a t e r L o n d o n 5 7 T h u r r o c k 5 8 S o u t h e n d - o n - S e a 5 9 M e d w a y T o w n s 6 0 C i t y o f P l y m o u t h 6 1 T o r b a y 6 2 P o o l e 6 3 B o u r n e m o u t h 6 4 C i t y o f S o u t h a m p t o n 6 5 C i t y o f P o r t s m o u t h 6 6 I s l e o f W i g h t 6 7 B r i g h t o n & H o v e

REGIONAL BOUNDARIES ADOPTED IN TABLES

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Data Used

Variable Description OUTPUT The value of main output less subsidies deflated into 2008 prices. We

therefore assume full decoupling from production activity. MATERIALS The values of all materials in 2008 prices. This comprises all variable

costs aside from energy used on the farm enterprises. For cropping farms these include cost of fertilizers, seeds, crop protection and other costs, for livestock these include cost of feed, veterinary and medicine as well as other costs.

ENERGY Total cost of energy consumed on the farm, comprising fuel and oil, and electricity

LAND Total area used for agricultural production LABOUR Total full time equivalent units operating on the farm CAPITAL The running and maintenance costs, depreciation and interest of capital

stock (taken at 3% p.a) deflated into 2008 prices

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Process...of MF

k'x'xt.s

'xmin8

1) Run separate frontiers for each region (k)

2) Solve an optimisation problem that minimises the absolute deviations between the metafrontier and the group frontiers for all the observations constrained by the fact that the output at the metafrontier is always greater or equal than the output from the k regions

ki

ki

kki

ki UV'xUVk ee;xfy6

The metatechnology ratio (MTR) can then be estimated by using the coefficient from (8) in (9):

'x

'xki

i

ki

e

eMTRy,xMTR9

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Process..

y,xMTRy,xDy,xD10 k

Finally the third stage consists of the estimation of the distance of each member (farm) of each group with respect to the metafrontier, which is given by (10)

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Summary Stats

N Output (£2008)

Materials (£2008)

Energy (£2008)

Area (Ha)

Labour (FTE)

Capital (£2008)

North England 420 283,421.0 130,989 13,018 107.3 3.0 86,105 SD 305,587.3 132,719 66,987 82.5 3.2 71,569 West England 483 329,366.8 142,070 8,069 103.6 3.7 103,092 SD 313,674.6 138,550 13,295 78.8 3.0 87,685 East England 571 367,039.1 166,793 7,952 130.4 4.1 125,006 SD 385,651.3 209,493 7,339 110.3 3.0 117,626 Wales 324 254,952.5 122,760 6,526 101.4 2.6 88,279 SD 217,766.5 118,481 5,952 62.7 1.2 66,072 North. Ireland 450 218,889.9 60,505 3,394 67.2 1.7 44,802 SD 173,022.6 54,705 2,535 78.3 0.7 32,896 Scotland 241 252,819.9 134,362 16,603 119.6 2.6 64,079 SD 226,754 85,844 9,782 51.3 1.1 28,274

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Individual TE scores

0.78

0.80

0.82

0.84

0.86

0.88

0.90

0.92

0.94

2005 2006 2007 2008

North

Wales

West

East

NI

Scot

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Testing for different production technologiesLR test on sum of individual regions

compared to pooled data set (UK):– Strongly rejects the null hypothesis and

indicates that regional frontiers are not the same

– Less strong but also rejects using English analysis

– Found by all other studies...– Means that bias in country level studies

exists...?

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Running Meta-Technology Ratio

0.900.750.600.450.300.15 0.900.750.600.450.300.15 0.900.750.600.450.300.150.00

24

18

12

6

0

1.00.90.80.70.60.50.40.3

24

18

12

6

00.900.750.600.450.300.15 1.00.90.80.70.60.50.40.3

NorthPerc

ent

West East

Wales Nth Ireland Scotland

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Meta Frontier Results

TE MTR MF Max TE MTR MF Max TE MTR MF Max2005 0.93 0.50 0.46 0.88 0.91 0.52 0.47 1.00 0.85 0.52 0.50 1.002006 0.93 0.47 0.44 0.84 0.92 0.51 0.47 0.98 0.86 0.51 0.52 1.002007 0.93 0.47 0.44 0.86 0.92 0.51 0.47 1.00 0.80 0.51 0.47 1.002008 0.93 0.51 0.47 1.00 0.91 0.52 0.47 1.00 0.83 0.52 0.48 1.00

Mean 0.93 0.49 0.45 0.90 0.92 0.52 0.47 1.00 0.84 0.52 0.49 1.00

TE MTR MF Max TE MTR MF Max TE MTR MF Max2005 0.92 0.56 0.56 0.95 0.93 0.48 0.44 1.00 0.90 0.60 0.54 1.002006 0.92 0.55 0.51 0.92 0.93 0.47 0.44 1.00 0.88 0.62 0.54 1.002007 0.92 0.56 0.52 1.00 0.93 0.47 0.43 1.00 0.90 0.67 0.60 1.002008 0.92 0.57 0.53 0.94 0.93 0.50 0.46 1.00 0.90 0.66 0.59 1.00

Mean 0.92 0.56 0.53 0.95 0.93 0.48 0.44 1.00 0.89 0.63 0.57 1.00

Wales NI Scot

North West East

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Conclusions

LR test rejects the common technology hypothesis even at a country level

Highlights regional constraints

Supports a regime of regional targeting of intervention– Advisory function– Best practice farms within the same region

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Methodological Issues

Restricted by different data collection schemas (esp. Inefficiency effects (why they divert from the MF)

Explore regional deflators.....

Attempt at using EU FADN data

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

End

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Meta frontiers

0.400

0.450

0.500

0.550

0.600

0.650

2005 2006 2007 2008

North

West

East

Wales

NI

Scot