Technological heterogeneity, technical efficiency and subsidies in Czech agriculture

Abstract

This paper deals with an analysis of technological heterogeneity and technical efficiency in individual sectors of Czech agriculture after the EU enlargement in 2004. A parametric approach was used – Stochastic Frontier Analysis (SFA) to address the research questions. Specifically, it is employed the Random Parameter Model specification, in which sector dummies are used to capture the intersectoral as well as intrasectoral differences in technology. The results show there is significant heterogeneity among the studied sectors (i.e., combined, plant, animal and other production). The analysis showed that Capital and Material are being substituted more and more for Labour in all sectors, especially in animal production. This result is to be expected, as the technology in this sector is labour-saving. However, it was found out that land elasticity is quite low in plant production and combined production; since Land is a production factor that significantly determines the level of final output, this result is quite strange. One possible explanation may be the policy of distributing subsidies among farmers, when the land is kept but used in a more extensive way. The intrasectoral differences in technology are statistically significant for all inputs. Average technical efficiency is highest in other production and lowest in animal production, while it is approximately at the same level in plant production and combined production. It was discovered that diversification (combined production) of activities lowers the level of technical efficiency compared to specialisation (plant production), but on the other hand it does allow for alleviation of the negative impacts of specialization (animal production) by optimizing the production program. Finally, the analysis did confirm a statistically significant positive relationship between SAPS subsidies and technical efficiency. Organic farming has a negative impact on technical efficiency and the influence of labour force quality is positive. The statistical significance of TOP UP subsidies as well as the localization of the company to LFA have not been proved.