Academic journal article Agricultural Economics Review

Efficiency and Productivity Change in the Greek Dairy Industry

Academic journal article Agricultural Economics Review

Efficiency and Productivity Change in the Greek Dairy Industry

Article excerpt

Abstract

The objective of this paper is to measure the efficiency and the productivity change of Greek dairy firms, using non parametric approaches. This assessment is being achieved by the computation of the CRS and the VRS DEA models, the context dependent DEA approach and finally, the evolution of the Malmquist productivity index. These empirical analyses are based on data from 29 Greek dairy firms. This implementation provided helpful information regarding the efficiency ranking of the firms that operate in the Greek dairy industry. Findings that inefficient firms are over-invested and over-exposed to high risk operation practices provide suggestions for future reparative actions in order to improve efficiency. This goal does not require radial effort from firms to achieve intermediate targets. Finally, stagnated mean efficiency change does not imply stagnated efficiency change for individual firms, but it is the outcome of a large variance of efficiency change scores being achieved by dairy firms from period to period.

Keywords: Efficiency, Context-depended DEA, Malmquist Productivity Index, Dairy Industry

(ProQuest: ... denotes formulae omitted.)

1. Introduction

The dairy market situation deteriorated dramatically during the 2007-2009 period. In 2007 European Union (EU) and world dairy market prices increased considerably leading to a relatively small increase in milk deliveries. However, in 2008, a drop in global demand connected with the economic crisis had a direct effect on EU market prices which dropped substantially affecting severely dairy producers' income. The market situation recovered in 2009 and continuously improved in 2010 (European Commission, 2010). According to the second "soft landing" report from the EC (2012), volatility, not to the extent observed during the 2008-2009 period, persisted in the dairy market until the end of 2010 and it receded in 2011 and 2012, leading to increased production and higher prices.

In general, the milk sector went through a period of turmoil, but since then the dairy market situation has improved and future prospects are broadly positive, although the market has not been stabilized. Increasing global demand, especially from emerging countries, such as India, China and Russia, and growing trade create new perspectives for the sector. In order to benefit from the opportunities offered by demand and trade growth, to stabilize the dairy market and to ensure a fair functioning of the dairy supply chain a strong and efficient dairy industry is required. Robust milk processing factories and retailers would mitigate the price fluctuations, alleviate the market situation and assist to the restructuring of the sector. An efficient and effective operation of the dairy industry is essential to raise the competitiveness of the dairy sector. In this context, the investigation of the economic performance and the efficiency of dairy firms would be beneficial for an insightful critical description of the dairy sector in total.

The purpose of this paper is to assess the efficiency and the productivity growth of the dairy industry in Greece. The technical efficiency level of 29 dairy firms is measured through the application of a context-dependent Data Envelopment Analysis (DEA) approach, while the total factor productivity change and its components is estimated using the Malmquist productivity index. The analysis is based on published data and provides an indicative picture of the performance, structure and productivity of the dairy industry in the country.

Dairy industry in Greece constitutes one of the most important and dynamic sectors of the country's economy and a traditional branch of the Greek food industry (Rezitis and Kalantzi, 2012), exhibiting significant development the last thirty years. The vast majority of the companies that operate in the industry are small, local, family diaries that produce various types of dairy products, indicating a rather fragmented industry (Feka et al. …

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