Measuring and decomposing total factor productivity growth of industrial dairy farms in Iran

Over the last decades, productivity growth analysis in agriculture has attracted attention of the economic researchers as well as policy makers in both developed and developing countries. Improving productivity is the best and effective way to achieve economic growth due to scarcity of production resources. Productivity management involves understanding the components and analyzing its changes in the development process. Improving total factor productivity (TFP) is seen as necessary for producers to remain competitive and profitable, particularly in markets where they face declining terms of trade. Without changes scale, TFP can be increasing in several ways, such as increasing output from the same level of inputs, constant the same level of output with a lower level of inputs, or changing the mix of inputs and or outputs. The objective of this research was measuring and decomposing productivity and profitability change. This paper estimated TFP changes and decomposed these changes into technical change, technical efficiency change, and scale and mix efficiency change in industrial dairy farms by using Hicks-Moorsteen TFP indexes. This index was chosen among other indexes, because it is an index that bases on distance functions and data envelopment analysis (DEA) methodology for estimating distances is convenient. Secondly, it is closely related to the Malmquist index, which has been used for some time as the index number of choice in the productivity decomposition literature. For the purposes of comparison, this paper developed data envelopment analysis (DEA) methodology for computing and decomposing Hicks-Moorsteen index. Input and output quantity and price data were included for labor, capital, animal feed, fuel, and milk using records from the results of a sample survey of industrial dairy farms in the provinces of Iran during 1990-2013. The results indicate that the TT effect (the growth in output prices relative to the growth in input prices) on profitability has been moderated by compensating changes in total factor productivity (TFP). The TT was improved 86 percent from 1990 to 1996 and during this period a simultaneous reduction in total factor productivity (TFP) by 15 percent was observed. In other words, industrial dairy farms productivity has been responsive to changes in the industrial dairy farms TT. The TFP survey also indicated that the index was initially decreased and then increased, and despite the fluctuations over the period of 1990-2013, the average has increased by 15% compared with the base year of 1990. Productivity efficiency (TFPE) has been decreased from 1990 to 2013, and decreased from 0.521 in 1990 to 0.248 in 2013. In other words, the gap between the existing TFP and the maximum TFP has increased over the study period. Analyzing TFP change in the 1990s indicates that important components of TFP change have been changed in ROSE and in the second half of the study period, the main component industrial dairy farms TFP change is technical change. These findings support the view that research and development expenditure has led to expansions in the production possibilities set, that dairy farms adopt new technologies quickly and make relatively few mistakes in the production process, and that they rationally adjust the scale and scope of their operations in response to changes in prices and other production incentives. The results demonstrate that industrial dairy farms have high technology, scale, and output mix-efficient throughout the study period, but input mix efficiency has been steadily decreasing over the study period and that reaches less than 40 per cent in 2013. In general, the development and promotion of technological symbols such as improved cows, artificial insemination, and embryo transfer, as well as increased production scale through the implementation of incentive policies and support of large manufacturing units can be considered to improve the productivity of production factors. Moreover, province level variations in scale and mix efficiency suggest that there exists a scope for improving productivity by taking a differential approach to the efficient use of agricultural resources and to increase scale and mix efficiency in production of the industrial dairy farms. Being able to identify the components of TFP change is critically important for public policy-making. Policies that can lead to these outcomes include reductions in the levels of output price support, removal of input subsidies, increases in tax rates and any other policies that cause deteriorations in the agricultural TT. These policies can have the effect on increasing productivity.