1. XV EAAE Congress | August 29th – September 1st 2017
TOWARDS SUSTAINABLE AGRI-FOOD SYSTEMS:
BALANCING BETWEEN MARKETS AND SOCIETY
Rationalizing Inefficiency in Agricultural Production – a Case of Swedish Dairy Agriculture with Example from Animal Welfare
Helena Hansson*, Gordana Manevska-Tasevska* & Mette Asmild**
*Swedish University of Agricultural Sciences, Department of Economics
**University of Copenhagen, Department of Food and Resource Economics
XV EAAE Congress | August 29th – September 1st 2017

2. Rationalzing Inefficiency – Example from Animal Welfare
Motivation of study
In this study we are interested in how farmers’ animal welfare considerations can function to rationalize inefficiency.
What if seemingly over-consumption certain production factors results from rational decisions?
Bogetoft & Hougaard (2003) introduced the notion of rational inefficiency – which means that what we record as inefficiency may indeed originate from rational decision-making where what seems as over-consumption of production factors is allowed to gain something desirable:
E.g. buffering against risk and uncertainty, strategic behaviour to avoid personnel turn-over etc.
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3. Rationalzing Inefficiency – Example from Animal Welfare
Aim
Our aim is to explore the rational inefficiency hypothesis in an agricultural setting.
We do this in two steps by focusing on dairy production:
Offer a theoretical explanation as to why dairy farmers can be expected to be rationally inefficient.
Search for systematics in patterns of inefficiency among the production factors, in order to empirically explore the possible existence of rational inefficiency in Swedish dairy farming.
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4. Rationalzing Inefficiency – Example from Animal Welfare
Why would we expect rational inefficiency in dairy farming?
We take a starting point in animal welfare!
Farmers may obtain economic value from managing their livestock, which is not connected to the functioning of the livestock in the production process (McInerney 2004; Lagerkvist et al. 2011).
In a recent study we have found that eight out of the ten most important motivational factors for working with animal welfare in dairy production were of non-use type (Hansson & Lagerkvist, 2016).
So farmers may over-consume production inputs to achieve higher levels of animal welfare, because that may give them economic value not reflected in the regular output!
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5. Rationalzing Inefficiency – Example from Animal Welfare
Method and data: Exploring the rational inefficiency hypothesis
1) Multidirectional efficiency analysis (MEA) (Asmild et al. 2003; Bogetoft & Hougaard, 1999)
2) We explored the relationship between levels of animal welfare-improving measures and the MEA scores.
3) We investigated whether what could be perceived as over-investment in animal welfare-improving measures is potentially rational in the sense that it improves actual animal welfare.
We used farm-level production data for a set of 421 specialist dairy farms, obtained from the Swedish Farm Accounting Survey.
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6. Rationalzing Inefficiency – Example from Animal Welfare
Results – MEA efficiency scores
Variable
Average score
Std dev
MEA scores
Production inputs
TE Variable costs
0.93
0.04
TE Fixed costs
0.83
0.09
TE Assets
0.81
TE Labour
0.08
Production outputs
TE Output 1
0.86
0.13
TE Output 2
0.79
0.17
DEA score
Input-oriented
0.11
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7. Rationalzing Inefficiency – Example from Animal Welfare
Results – tradeoff between AW improving measures and efficiency
TE Variable costs
TE Fixed costs
AW: building costs/LU
Low
High
Total
AW : building costs/LU
116 97
212
140 73
210 96
112
209 70
138
211
421
Pearson chi2
2.9044 Pr
0.088
0.000
TE Assets
TE Labour
122 91 72
136 87
121
Pearson chi2:
TE Output 1
TE Output 2
119 94
123 90
117
6.1819
0.013
0.001
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8. Rationalzing Inefficiency – Example from Animal Welfare
Results – do the farms that invest more in animal welfare at the expense of efficiency acctually achieve better animal welfare?
AW indicator: Rate of culling in %
RI group
Efficiency group
Mean
rate of culling,
rate of culling, Efficiency group
t-testa,b
Support for RI hypothesis
High build. costs
& low TE VC
Low build costs
& high TE VC
9.06
12.56
-33.65***
Yes 
& low TE FC
Low build. costs
& high TE FC
9.93
11.85
-22.97***
Yes
& low TE Assets
& high TE Assets
10.01
12.33
-25.67***
& low TE Labour
& high TE Labour
9.82
11.52
-18.07***
& low TE Output 1
& high TE Output 1
9.90
12.09
-21.55***
High build. Costs
& low TE Output 2
& high TE Output 2
9.47
12.67
-29.52***
& low TE DEA
& high TE DEA
9.56
12.57
-29.34***
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9. Rationalzing Inefficiency – Example from Animal Welfare
Results – do the farms that invest more in animal welfare at the expense of efficiency acctually achieve better animal welfare?
AW indicator: Veterinary costs in SEK/LU
RI-group
Efficiency-group
Mean
vet costs RI group
vet costs Efficiency group
t-testa, b
Support for RI hypothesis
High build. costs
& low TE VC
Low build. costs
& high TE VC
279.37
283.73
-1.64*
Yes
& low TE FC
& high TE FC
268.43
285.04
-7.26***
& low TE Assets
& high TE Assets
272.81
276.39
-1.61*
& low TE Labour
& high TE Labour
282.32
283.64
-0.51 -
& low Output 1
& high Output 1
266.81
291.40
-8.67***
& low Output 2
& high Output 2
287.55
288.06
-0.20
& low TE DEA
& high TE DEA
272.50
298.15
-9.17***
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10. Rationalzing Inefficiency – Example from Animal Welfare
Concluding remarks
Our data support the existence of rational inefficiency in dairy farming in Sweden, based on animal welfare considerations.
For dairy farms where seemingly inefficiency originates from rational decision making, measures aiming at reducing inefficiency are likely perceived as counterproductive by the farmers. Such measures should be targeted at farms where inefficiency can be interpreted as waste in production.
Farmers’ attachment to their animals depends on the type of animals kept (Bock et al. 2007), and this may impact farmers’ work related to animal welfare. Therefore, our type of analysis should be repeated for other types of livestock farms in order to further explore the rational inefficiency hypothesis among livestock farms.
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