Decomposition of Total Factor Productivity Change in the U.S. Hog Industry, 1992-2004

There have been dramatic structural changes in the U.S. hog industry in the last two decades that have coincided with substantial increases in farm productivity. This study used a stochastic frontier analysis to measure TFP growth between 1992 and 2004 and to decompose the TFP growth into four components: technical change and changes in technical efficiency, scale efficiency, and allocative efficiency. The study finds that productivity gains in the twelve year study period are explained almost entirely by technical progress and by improvements in scale efficiency. The study also disaggregates TFP growth in the Southeast and Heartland to better understand the implications of large spatial shifts in production. Results indicate that regional differences in TFP growth in the 1992-1998 and 1998-2004 periods can be explained primarily by changes in scale of production. Results indicate that despite large increases in the scale of production, there remains substantial scope for further scale efficiency gains, particularly in the Heartland where farms operate at a smaller average scale compared to in the Southeast.