Measures of farm business efficiency

Date14 March 2008
Publication Date14 March 2008
AuthorŠtefan Bojnec,Laure Latruffe
SubjectEconomics,Information & knowledge management,Management science & operations
Measures of farm business
ˇtefan Bojnec
Faculty of Management, University of Primorska, Koper, Slovenia, and
Laure Latruffe
French Institute of Agricultural Research (INRA), Rennes, France
Purpose – The aim of this paper is to investigate technical, scale, allocative and economic efficiencies
by data envelopment analysis (DEA) and stochastic frontier methods to provide a decision-making
tool and managerial implications in the measurement of farm business performance and efficiency.
Design/methodology/approach – Technical, scale, allocative and economic effic iencies are
analyzed with the Farm Accountancy Data Network (FADN) sample for 13 farm business branches
in Slovenia in the period 1994-2003. DEA models are used with an output-orientation, three outputs
and four inputs. The non-parametric DEA estimations are compared with a parametric stochastic
frontier approach. The cluster analysis is used to identify three different farm business groups
according to their performance.
Findings – The average technical, scale, allocative and economic efficiencies for the whole FADN
sample over the analyzed period are relatively high (around or over 0.90), suggesting that, although the
FADN sample contains very different farms, the latter have similar management practices, and are
similarly able to make the best use of the existing technology. Five farm branches (crop, dairy,
livestock using own feed, fruit, and forestry) are fully efficient with respect to all four analyzed
efficiency measures, suggesting that these specializations have the best chance to compete on the
European and world markets.
Originality/value – Studies of technical, scale, allocative and economic efficiencies are rare for
transitional farm businesses, especially in Slovenia. The research contributes to the crucial issue of
whether small family farm businesses might be able to compete on international markets, as Slovenian
agriculture is characterized by such structures.
Keywords Process efficiency,Stochastic modelling, Clusteranalysis, Slovenia
Paper type Research paper
A key question in managerial economics is economic efficiency of production, based on
well known mini-max principle achieving maximum output at given costs or
producing output at minimum costs, in order to maximize economic efficiency as the
difference between revenues and costs (Heather, 2002; Allen, 2005). Economic
efficiency has several components: technical, scale and allocative efficiencies. In this
paper, all components are analyzed for Slovenian farms during the transition period
from the previous socialist system to a market economy and adjustments to the
European Union (EU) membership, with a Farm Accountancy Data Network (FADN)
database to investigate the performance of the Slovenian farms in the FADN sample.
Different performance measurement systemsand models have been developed in the
literature.Among a range of most recently publishedresearch studies, Papler andBojnec
(2007) andKribel and Bojnec (2007) appliedmultiple regression analysisand multivariate
The current issue and full text archive of this journal is available at
Received 23 April 2007
Reviewed 1 July 2007
Accepted 16 October 2007
Industrial Management & Data
Vol. 108 No. 2, 2008
pp. 258-270
qEmerald Group Publishing Limited
DOI 10.1108/02635570810847617

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