Are high labour costs destroying the competitiveness of Danish dairy farmers? Evidence from an international benchmarking analysis

This paper analysis the competitiveness of Danish dairy farmers relative to dairy farmers in other Northern European countries. We use individual farm accounts data from the European Commission’s Farm Accountancy Data Network (FADN) and have an average of 1665 observations per year in the period from 2002 to 2008. In all years, the hourly pay for labour is highest in Denmark and the difference is increasing, especially in 2007 and 2008. We apply Data Envelopment Analysis in a new way to capture the effect on the competitiveness from these differences in labour costs. We compare the distributions of efficiency scores in different countries to assess their relative competitiveness. To analyze the effect of labour costs we apply two different DEA models; one including the labour input as hours worked and the other including labour costs. This way we capture the effect of labour costs on the differences in average efficiencies between countries. The results shows that the Danish dairy farmers, on average, were the most economically efficient in Northern Europe in 2007 and 2008. We find that the effect of labour costs for the Danish dairy farmers is decreasing during the study period despite of the salary differences increasing. In 2002 the negative impact of having the highest hourly pay was an average 4.7 percentage points whereas it in 2008 was only 0.6 percentage points.This indicates that the Danish dairy farmers have been highly successful in adapting to having the highest, and increasing, hourly labour costs in Northern Europe.