Assessment of Economies of scale and technical change along the food chains - Efficiency and technical change -
Creators: name: Cechura, Lukas
name: Zdeňka Žakova Kroupova
name: Rumankova, Lenka
name: Tinoush Jamali Jaghdani
name: Samoggia, Antonella
name: Maitri Thakur
Publisher: name: Zenodo
Year: 2020

description: This study provides the findings on technical efficiency, firm heterogeneity, the exploitation of economies of scale, the impact of technical change, as well as total factor productivity development on both agricultural and processing levels of the selected European agri-food supply chains. The analysis is based on two-stage stochastic frontier modelling. The first stage uses country-specific input-distance function models to estimate the economies of scale, persistent and transient technical efficiency, as well as the impact of technical change and the development of total factor productivity in selected countries. In the second stage, meta-frontier approach is used to compare the technical efficiency and the total factor productivity levels among the countries in the European agri-food chains. Afterwards, the impact of technological change on the prices and quantities as well as on the rents and welfare effects is evaluated and main actors in innovation processes are discussed. The study covers 12 European countries: Austria, Belgium, the Czech Republic, Finland, France, Germany, Ireland, Italy, Romania, Spain, Sweden, and the United Kingdom. It is focused on the analysis of cereals, milk and salmon production, and five food processing sectors: processing and preserving of meat and production of meat products, manufacture of dairy products, manufacture of grain mill products, manufacture of bakery and farinaceous products and Italian tomato processing. The research is based on the individual firms/farms data and covers the period 2006-2018. Country’s input distance function estimates reveal differences in food-producing and processing technologies among the countries but no significant inter-sectoral heterogeneity on the country level. While the agricultural level is characterized by predominantly increasing returns to scale, food processors in general do not exhibit significant economies of scale. In addition, the results indicate that large companies have optimal size on both agriculture and food-processing levels. On the other hand, small and middle-sized companies have a substantial potential to improve their productivity by increasing scales of operations, leading to lower unit costs and increasing profitability. The technical change significantly positively contributes to the production possibilities in food processing industry in majority of the countries as well as in the salmon production. On agriculture level, the technological regress is revealed especially in milk production in the majority of analyzed countries. Biased technical change is pronounced in the half of the analyzed countries and is predominantly labour-saving in the food-processing industry and the cereals production, and capital-using in the milk production. The overall efficiency is high in agriculture as well as in food processing. However, significant differences among the countries in the efficiency of inputs use were revealed. In particular, the overall technical efficiency estimates are between 77% and 95% in agriculture, 73 and 95% in food processing industry and about 84% in salmon production. That is, farmers may reduce their costs from 5% up to 27%, firms in the food processing industry from 5% up to 23%, and salmon producers by 16% to produce the same volume of output. The decomposition of overall technical efficiency reveals that many farmers are falling behind the most efficient ones in the log-term in the majority of analyzed countries. The developments in technical efficiency are rather stochastic in the analyzed countries. Thus, idiosyncratic developments in technical efficiency are observed in agriculture as well as in food-processing industry. The technical efficiency fluctuations may result from shocks associated with the introduction of new technologies, changes in human capital as well as shocks connected with weather conditions and climatic changes. The meta-frontier analysis did not reveal any significant differences in overall technical efficiency among the countries. This holds for food processing as well as for agricultural level. That is, the most efficient farmers and food processors in the analyzed countries have similar level of technical efficiency. The total factor productivity (TFP) estimates show significant differences among countries. However, the predominantly negative total factor productivity change is observed in the analyzed period in agriculture as well as food processing industry. The manufacture of bakery products, where the productivity is followed the positive development path in the majority of analyzed countries, is the exception. The scale effect represents the main source of the total factor productivity change in the majority of analyzed sectors and countries. Changes improving scale efficiency and bringing technological progress are required to change this negative TFP development and consequently to generate further economic growth and to increase consumers’ welfare. Finally, the meta-frontier analysis shows that TFP differences among the countries exist on both agricultural as well as food processing level. The scale efficiency component is the main source of these differences. The technical change has positive impact on output quantities. Moreover, it reduces the average costs in food processing industry. The opposite is true for agriculture where the technological regress was estimated. However, the price developments and estimated figures on technical change in the analyzed food chains suggest that the total welfare effects increased in analyzed period. Finally, large companies were identified as the main actors of food chains development.
description: Cechura, L., Žakova Kroupova, Z., Rumankova, L., Jaghdani, T.J., Samoggia, A., Thakur, M. (2020). Assessment of Economics of scale and technical change along the food chain. The VALUMICS project funded by EU Horizon 2020 G.A. No 727243. Deliverable: D5.6, Czech University of Life Sciences, Prague, 169 pages.