Farm Accountancy Cost Estimation and Policy

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No restriction on MC (Marginal Costs) necessary (i.e. generally positive). - input demand needs to be restricted to be positive in some cases. (e.g., for long term ...
Estimating flexible cost functions for Germany using EU-FADN and Eurostat data Sirak Bahta and Frank Offermann

Venice, 21-22 October 2010

Data preparation and empirical specification • Type of farming - Dairy • Region - Bavaria - Lower Saxony - Germany • For Germany it is important to disaggregate other outputs (Yb) to crops and livestock (Yb and Yc, respectively), however further disaggregation encountered problem in calculating results (no calculation of marginal and average costs), so not done so far

Sirak Bahta

Data preparation and empirical specification • Functional form - Quadratic form - Cubic form did not converge • Restriction - No restriction on MC (Marginal Costs) necessary (i.e. generally positive) - input demand needs to be restricted to be positive in some cases (e.g., for long term cost function in Lower Saxony)

Sirak Bahta

Econometric estimations Descriptive statistics (Bavaria) R2

MT

LT

Xx1

0,1681*

0,1696*

Xx2

0,1937*

0,2984*

Xx3

0,5839*

0,5554*

Xx4

0,2425*

0,1889*

Xx5

0,4190*

0,3959*

76,6%

70,0%

% of significant coefficients Sirak Bahta

Econometric estimations Descriptive statistics (Germany) R2

MT

LT

Xx1

0,0776*

0,0705*

Xx2

0,1564*

0,2009*

Xx3

0,4136*

0,3773*

Xx4

0,2471*

0,2041*

Xx5

0,3204*

0,2261*

59,6%

76,7%

% of significant coefficients

Sirak Bahta

Input demand • many negative values if not restricted

% neg. values, Bavaria, dairy MT

LT

100

14

crop spec

0

63

cows

68

59

intermediates

0

13

100

27

livestock spec

feed Sirak Bahta

Input demand elasticities for Bavaria (MT) Input prices

Input demands

Sirak Bahta

Livestock inputs

Crop inputs

Milk cows

Intermed. consumpt.

Purchased feed

Livestock inputs

-0.087 (1.212)

-0.001 (0.009)

0.006 (0.073)

-0.029 (0.290)

0.118 (1.497)

Crop Inputs

-0.004 (0.023)

-0.005 (0.040)

0.038 (0.208)

0.072 (0.626)

-0.077 (0.684)

Milk cows

0.003* (0.001)

0.006* (0.002)

-0.553* (0.189)

0.591* (0.206)

-0.043* (0.021)

Intermediate

-0.002* (0.001)

0.001* (0.001)

0.076* (0.029)

-0.263* (0.097)

0.193* (0.071)

Purchased feed

0.084 (0.694)

-0.010 (0.107)

-0.049 (0.386)

1.704 (13.568)

-1.720 (13.698)

Input demand elasticities

• Often very low input demand elasticities

Sirak Bahta

Marginal, average costs and quota rents for milk MT

Sirak Bahta

Bavaria Lower Saxony

427 84

Germany

164

Bavaria Lower Saxony Germany

MT 427 82 161

Bavaria Lower Saxony Germany

MT -127 199 128

MT Wieck 111 140

Marginal costs LT 218 95 180

Average Variable costs LT GECOM 250 218 230 83 177 Quota rent LT 81 187 112

Scale and scope economies Over all Returns to Scale MT

LT

Bavaria

0.9964

0.9838

Germany

0.9933

0.9845

Economies of scope

Sirak Bahta

MT

LT

Bavaria

1.000

1.000

Germany

1.003

0.9999

Crop Farms (Bavaria MT) Oil and industrial crops Cereals Potatoe Wheat Oil and industrial crops Cereals Potatoe Wheat Oil and industrial crops Cereals Potatoe Wheat Sirak Bahta

Marginal costs 598.3 103.6 62.5 70.6 Average Variable costs 592.4 103.6 59.2 69.6 „Quota rent“ -505.3 -26.0 31.8 26.8

Concluding remarks • The share of negative input demands is relatively high in all cases • very high average and marginal costs in Bavaria MT compared to other sources • unplausible quota rent for dairy and crops (Bavaria MT) • often very small elasticities of demand • how to deal with results where MC(LT) > MC(MT) ? • The estimation takes several hours; several days for total Germany -> limits possibilities for doing many test runs for different specifications Sirak Bahta