1. Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems by Cristina Brasili, Roberto Fanfani Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems by Cristina Brasili, Roberto Fanfani Department of Statistics, University of Bologna, Via Belle Arti, 41, 40126 Bologna Ph. ++39 051 2098260, Fax ++39 051 232153, E-mail: brasili@stat.unibo.it E-mail: fanfani@stat.unibo.it

2.   The localisation and specialisation of Italian food industry * T he overall analysis of the food industry did not capture the various geographic realities * The analysis at national and regional level are not relevant to represent the structural characteristics of food industry * The processes of specialisation displayed substantial differences between - provinces - sub-sectors Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

3.   The Sub-Sectors of the Italian Food Industry (Establishments and Employees) T he overall analysis of the food industry did not capture the various sub sectors characteristics The food industry sub sectors have - different importance - different structure - different localization The main sub sectors of the Italian food industry are - “other food industries ”(49% of workers) - meat transformation (12.4% of workers) - dairy (11.8%) - fruit and vegetables (6.2%) Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

4.  The of Specialisation in the Meat Sub-Sector by provinces (1996)  In the meat sector 24 provinces were specialised in terms of employees and establishments  The provinces of Modena and Lecco displayed the highest specialisation in the meat sector, in terms of both establishments and employees (3 times the Italian average).  The provinces of Cremona and Parma were also specialised, in terms of establishments (5 times the national average).

5. Specialisation in the Meat Sub-Sector– 1996 provinces Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

6.  The of Specialisation in the Fruit & Vegetables by provinces (1996) u In the fruit & vegetables sector 26 provinces were specialised in terms of employees and establishments. u The specialised provinces are mainly in Southern Italy (Salerno, Avellino, Naples and Reggio Calabria). u In the North Italy, Ravenna is in the leading position, followed by other provinces, such as Piacenza, Ferrara and Bolzano.

7. Specialisation in the Fruit & Vegetables Sub-Sector– 1996 provinces Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

8.  The economic and financial analysis in the meat and in the fruit & vegetables sub-sectors ( balance-sheets of firms 1996-1999)  We have analysed more than 3,800 food industry firms budgets from 1996-99. (The coverage in terms of workers is about 45%)  In the meat sub sector we have considered a panel of 446 firms in 4 years (1996 to 1999).  In the fruit & vegetables sub sector we considered a panel of 227 firms in 3 years (1996 to 1998).  We have calculated some common balance sheet ratios u ROI, ratio of the operating income to the invested capital u ROE, ratio of the net profit to the company’s capital or equity u Productivity of labour, ratio of the added value to the employees (millions) u Labour cost per employee, ratio of the cost of labour to the employees (millions) u Debt ratio, ratio of the total liabilities to the net worth (per 100) u Innovation ratio, ratio of intangible fixed assets to total assets (per 100).

9. Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems The economic and financial analysis of the meat sub-sectors  We have consider a panel of 446 firms for 4 years, with more than 24,000 workers in 1999 u 51% of firms were small (<20 employees) u 65% of the employees worked in large firms (>100 employees).

10. Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems  We have consider a panel of 227 firms for 4 years, with about 13,500 workers in 1998 u 50% of firms were small (<20 employees) u 62% of employees worked in large firms (>100 employees). The economic and financial analysis of the fruit and vegetables sub-sectors

11. Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems  The analysis of food industry at provincial level infers a very high levels of specialisation.  The analysis of meat and fruit & vegetables sub sectors show a greater degree of specialization at province and local level (municipalities)  The economic and financial analysis of the balance sheets of meat processing and fruit & vegetables firms (by size classes) encourage us to conduct a more in-depth analysis of the local system.  To measure of the “District effect” in food industry we have made these steps:  We have identified the districts of meat and fruit & vegetables at municipalities level (Brasili, 1999)  We have done the economic and financial analysis of the firms belonging to the main districts, for each sub sectors  We have estimated the efficiency of firms belonging to the main districts utilising a stochastic frontier production function The measure of the “District effect” in food industry

12. The Italian districts in the meat sub-sector The Italian districts in the meat sub-sector Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

13. The food districts in the meat sub sector The food districts in the meat sub sector - the “Ham” in Italy -  Prosciutto di Parma : u 201 producers u 9 millions of pieces ( u 44% of the Italian production of hams) u about 1,400 millions-euro of turnover u about 400 millions-euro of exportations  Prosciutto di San Daniele u 27 producers u 2 millions of pieces u 10% of the Italian production of hams u about 250 millions-euro of turnover u about 48 millions-euro of exportations  Other meat districts  Non district meat firms Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

14.  The financial analysis confirm the higher return ratios for the meat firms localised in the districts  Parma and Reggio Emilia and San Daniele meat processing districts generally have higher return ratios. u The ROI is higher than 6% in almost all the years considered u The other districts (less characterised than the first two) and the non- district firms have a ROI values lower than 6%.  The ROE value was less clearly higher in the districts u In non-district firms, it never exceeded 3%, u whereas the Parma, Reggio Emilia and San Daniele districts it was lower than 3 only in 1996 (in San Daniele).  Labour productivity was u much higher in the Parma and Reggio Emilia and San Daniele district firms than in the firms localised in the other districts and for the non-district firms.  Labour costs were also a higher in district firms because of generally higher salaries (especially in particular of the Parma and Reggio Emilia district).  The the debt ratio turned out to be lower in the districts. (However, they displayed lesser recourse to external financial resources). The measure of the “District effect” in meat industry

15. Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems  The measure of 'district effect' in terms of efficiency for the meat industry firms u The estimation of a stochastic frontier production function was used in conjunction with an estimation of individual fixed effects relative to meat processing firms alone, both district and non-district. u A positive 'district effect' was equivalent to a reduction of a firm's technical inefficiency. Our application covered the above analysed panel 446 firms in the years 1996, 1997, 1998 and 1999. u The specification of the stochastic frontier production function is reported in the next slide

16. Stochastic frontier production function Stochastic frontier production function Meat processing firms Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

17. The existence of a 'district effect' in terms of efficiency: a stochastic frontier production function u In the Parma and Reggio Emilia district the coefficient of the district variable was significant and of the expected sign (about -0.9) with respect to those not included in the meat districts; u In the San Daniele meat district, moreover, it had the expected sign but a much lower absolute value (-0.5 ) and -0.2 in the other meat districts. The measure of the “District effect” in meat industry

18. Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems u The Size class and geographic location were other distinctive factors in the efficiency of meat industry firms, but in an opposite way.  Inefficiency was higher in small firms, roughly 2 times the one of larger firms.  Moreover, the fact of belonging to North West, North East and Centre geographic areas is a factor of decreased inefficiency vs. belonging to the South of Italy (more than -0.2). u The variable of technological innovation; the coefficient had the expected sign (-0.43), denoting reduction of inefficiency, but it was not significant. The measure of the “District effect” in meat industry

19. Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

20.  We have considered a panel of 227 firms for fruit and vegetables from 1996 to 1998  The firms was clustered in the following groups (districts or not) u Romagna district u Salerno district u Other fruit districts u Non district firms  We have conducted the financial and the efficiency analysis on these groups The measure of the “District effect” in fruit & vegetables industry

21. The Italian districts in the fruit & vegetables sub-sector The Italian districts in the fruit & vegetables sub-sector Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

22.  The economic and financial analysis for the fruit & vegetables industry in the districts  The analysis of the balance-sheet ratios gave evidence of a “district effect” for the Romagna district  The analysis gave also evidence of a restructuring process in the fruit & vegetables sector  The ROI ratio u in the Romagna distric was about 5% in 1998 and in 1997 and about 8% only in 1996. u Conversely, in the Salerno district, the ROI had the same trend but with values much lower than district and as against the other groups.  The labour productivity u in Romagna displayed the highest value and lowest values were observed in the Salerno district  The labour cost per employee was almost the same in each group.  The debt ratio had the lowest values in the Romagna district in all the years considered.

23. Stochastic frontier production function Stochastic frontier production function Fruit & vegetables processing firms Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

24.  The existence of a 'district effect' in terms of efficiency for the fruit & vegetables industry: a stochastic frontier production function  The analysis confirmed that in the fruit & vegetables sector, there was a very small district effect, smaller than in to the meat sector.  There are big differences between the two main districts  In Romagna it recorded higher return ratios and a sharply higher productivity of labour.  In Salerno both the financial ratio and the technical efficiency are lover than other distrits and other firms outside the districts u All the district variables were not significant, but all of the expected sign (in terms of inefficiency reduction). u The size of the firms showed negative coefficients but higher for the smallest firms and significant (-0.9). u The Efficiency was higher in the firms belonging to the Centre (-0.8) and to the North West (-0.4) and also significant, in the North East (-0.2).

25. Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

26. Concluding remarks The Analysis at the provincial and local level infers very elevated levels of specialisation in the food industry. The specialisation process is different for each sub sector of the food industry There are very different economic situations, depending on the size of the firms, but size is not always a disadvantage for smaller firms. As a result, attention should be focused on localisation in the districts. The results from the analysis of the balance sheets of the two sub-sectors (meat processing and fruit & vegetables) per size classes are very interesting and encourage us to conduct a more in-depth analysis of the local system involved in the two sub- sectors. Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

27. Concluding remarks The economic and financial analysis show better results for firms inside the local system, especially for the meat industry (Parma better than S. Daniele, and other non districts firms), but also in Romagna district for fruit industry. The district effect is often colligated to Better economic results (ROI, ROE) Higher productivity of labour Lower debt The estimation of the stochastic frontier production function for firms validates our previous results in favour of a “District effect”. The district effect is more evident in meat industry respect to fruit and vegetables. Conference 2001 - “ Comparing Economic Institutions ” Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems Conference 2001 - “ Comparing Economic Institutions ” Local economic development in Italy - Siena, 8-11 November 2001 Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems