Measurement and Explanation of Technical Efficiency Performance in Ukrainian Agriculture, 1991-1996

By Murova, Olga I.; Trueblood, Michael A. et al. | Journal of Agricultural and Applied Economics, April 2004 | Go to article overview
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Measurement and Explanation of Technical Efficiency Performance in Ukrainian Agriculture, 1991-1996

Murova, Olga I., Trueblood, Michael A., Coble, Keith H., Journal of Agricultural and Applied Economics

The present study examines technical efficiency patterns in Ukraine's crop sector for 1991-1996. The economic and policy environment in Ukraine has changed since reform began in 1991. Many policy changes have exerted offsetting economic pressures on efficiency. Enterprise privatization and the liberalization of prices and trade put upward pressure on technical efficiency, whereas start-stop land privatization efforts, unpredictable government intervention, and slow developments in the credit and labor markets put downward pressure on efficiency. We found that technical efficiency appears to have improved slightly over the 1991-1996 period, suggesting that the positive forces had more impact.

Key Words: Data envelopment analysis, enterprise privatization, inefficiency, price liberalization, productivity, stochastic frontier analysis, technical efficiency

JEL Classifications: D29, E23, E66, O38, P32

There is significant interest in Ukraine's agricultural sector, which is often referred to as the "breadbasket of Europe" for its role as a food exporter during the early 20th century. Ukraine, the largest country in Europe in geographical area and the fifth most populous country, is home to one-third of the world's rich black soil and is considered to have great agricultural potential. Agriculture is very important to the Ukrainian economy, accounting for 40% of Ukraine's gross domestic product and employing 20% of its total population.

Among the republics of the former Soviet Union, Ukraine was a major producer of many agricultural commodities. For example, Ukraine's total grain production averaged 46 million tons during the period 1988-1990, nearly half the level produced in Russia and approximately one-quarter of total production in the former Soviet Union (Figure 1). However, by 1998-2000, total grain production had declined to an average of 24 million tons. Similar contractions were observed for sugar beets, fluid milk, beef and veal, pork, and poultry; only the production of sunflower seeds has stayed relatively constant.

There are many questions about whether Ukraine can harness its agricultural potential and recapture its important role in world markets. At the beginning of reform, it was expected that output would contract initially as the reforms were implemented and real prices fell, but, eventually, the sector was expected to recover as productivity and efficiency improved. Although output has fallen, it is unclear whether efficiency in Ukraine's agricultural sector has improved or whether the sector has shown any clear signs of a rebound.

The objectives of the present study were twofold. The first objective was to highlight some of the economic policies in Ukrainian agriculture, which have an unclear net effect a priori, and then to relate these policies quantitatively by measuring technical efficiency performance on corporate and private farms over the 1991-1996 period. We measured technical efficiency as the degree to which producers are able to maximize physical output from given input levels. The second objective was to quantitatively test a particular set of farm level and institutional variables that were found to be important in explaining technical efficiency performance in Ukraine's neighbor, Russia, given that both countries inherited a similar set of policies and circumstances from the Soviet period.

Ukraine's economic environment during the reform period can be characterized as one of drastic price change, as will be highlighted below. This would seem to indicate that it might be more important to measure allocative efficiency (cost minimization, which is a behavioral phenomenon) rather than technical efficiency (a physical phenomenon of producing on the frontier). Although an allocative efficiency study would be welcome in the future (assuming prices are available), there are still good reasons to examine technical efficiency. In Ukraine's case (along with Russia and several other countries in transition), the price liberalization shock was quite severe.

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Measurement and Explanation of Technical Efficiency Performance in Ukrainian Agriculture, 1991-1996


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