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
