Title: Dynamic efficiency of German dairy farms under uncertainty

Authors: Silke Hüttel; Rashmi Narayana; Christina Wagner; Martin Odening

Addresses: Agricultural Economics Group, Institute of Business Administration, University of Rostock, Justus-von-Liebig-Weg 6, D-18059 Rostock, Germany ' Finance and Economics Area, T.A. Pai Management Institute, P.O. Box No. 9, Manipal – 576104, India ' VDL Bundesverband, Claire-Waldoff-Str. 7, D-10117 Berlin, Germany ' Department of Agricultural Economics, Farm Management Group, Humboldt-Universität zu Berlin, Philippstrasse 13 H 12, D-10115 Berlin, Germany

Abstract: Output and price uncertainty determines the optimal allocation of variable inputs, and by the same token, firms' long-term adjustment of quasi-fixed factors. Dynamic efficiency measures, however, have thus far ignored uncertainty. To address this gap we present a model for dynamic efficiency measurement that combines a shadow cost approach with a stochastic dynamic cost-minimisation. We apply this model to western German dairy farm-level data from 1996-2010. We find that farms are more efficient in the long-run factor adjustment compared to the short-run, though they exhibit sensitivity to uncertainty. Neglecting uncertainty will overestimate average inefficiency and thus farms may appear seemingly inefficient.

Keywords: OR in agriculture; dynamic efficiency; uncertainty; shadow cost; technical and allocative efficiency.

DOI: 10.1504/IJBPM.2017.087111

International Journal of Business Performance Management, 2017 Vol.18 No.4, pp.427 - 458

Received: 25 Jan 2016
Accepted: 04 Jul 2016
Published online: 06 Oct 2017 *

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