1. agriregionieuropa A metafrontier approach to measuring technical efficiency The 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 122 nd European Association of Agricultural Economists Seminar Evidence-Based Agricultural and Rural Policy Making Methodological and Empirical Challenges of Policy Evaluation February 17 th – 18 th, 2011, Ancona (Italy) associazioneAlessandroBartola studi e ricerche di economia e di politica agraria Centro Studi Sulle Politiche Economiche, Rurali e Ambientali Università Politecnica delle Marche

2. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Why is important  Accurate measurement indicates efficient resource use and hence enters debates regarding food production, climate change, wider sustainability issues 2

3. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Whole Farm Approach 3

4. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 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....

5. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) The Role of Regions in technical efficiency measurement  Previous 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

6. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) How do we compare? 6

7. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 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

8. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 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.

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

10. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Data Used

11. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Process...of MF 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

12. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Process.. 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)

13. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Summary Stats

14. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Individual TE scores

15. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Testing for different production technologies  LR 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...?

16. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Running Meta-Technology Ratio

17. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Meta Frontier Results

18. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 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

19. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 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

20. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) End

21. agriregionieuropa 122 nd EAAE Seminar, February 17 th – 18 th, 2011, Ancona (Italy) Meta frontiers