Productivity and Efficiency in European Milk Production: Can We Observe the Effects of Abolishing Milk Quotas?

Abstract

The study aims to explore the sources of competitiveness of dairy producers before and after the abolition of milk quotas in selected EU member states. The investigation is based on the stochastic frontier modelling of an input distance function in the specification of the four-error-component model. The model is estimated with a multistep procedure employing the generalized method of moments estimator, addressing the potential endogeneity of netputs, and panel data gained from the FADN database. The results revealed that total factor productivity experienced an increasing trend in the majority of the analysed countries. Since the main driver of productivity growth was found to be the scale effect, our findings support the hypothesis that abolishing milk quotas has a positive effect.

Factors Influencing Technical Efficiency in the EU Dairy Farms

“…The way farmers use the milk quota market is associated with farm efficiency. According to Čechura [13], the main driver of productivity growth is the scale effect, which was strengthened after the abolition of milk quotas and positively impacted farms. They also found a positive effect on productivity after the abolition of milk quotas, as also shown in our study…”

“…Data for production function estimation were obtained from the Farm Accountancy Data Network (FADN) database [28]. FADN data for evaluating the technical efficiency of dairy farms have been used in many research papers [13,[29][30][31]. FADN data represents EU milk production for 2014-2019 for each Member State at the NUTS 1 level (regional level).…”

“…The TE was higher after the abolition of milk quotas (after April 2015). According to Čechura et al [13], the main driver of productivity growth is the scale effect, which could be strengthened after the abolition of milk quotas, positively impacting farms. The development of TE showed an increasing linear trend (as shown in Figure 3).…”

“…Some studies have evaluated the factors affecting the technical efficiency with respect to the abolition of quotas [11][12][13], to new and old EU member states [14,15], to regions [16][17][18], subsidies drawing [19,20], herd size [18,21,22], the ratio of the total number of dairy cows to the total number of cattle [23], and the economic size [24]. Technical efficiency in agriculture is influenced by many other factors such as technology, quality of factors, management and organisation on the farm, political and institutional conditions, farm economies of scale, etc.…”

Unpacking Total Factor Productivity on Dairy Farms Using Empirical Evidence

“…Also, policies aimed at supporting investments that embody innovations tend to facilitate productivity [27]. In addition, there is evidence that the policy shift that unwound the milk quota system (before it was ended in 2015) was found to have led to an improvement in productivity [1,28,29], while tradability of milk quota was found to reduce allocative inefficiencies and allow resources to flow to more efficient farms [30,31].…”