Technical efficiency analysis and decomposition of productivity growth of Spanish olive farms

The concept of technical efficiency is critical to measuring the firm performance, determining the degree of innovative technology adoption and the overall production efficiency. Traditionally, technical efficiency has been measured as the ratio of observed output to maximum feasible output. Stochastic frontier models have been widely utilized to assess this issue. Our research evaluates technical efficiencies in the Spanish olive sector. Specifically, the main objective of this study is to estimate a stochastic frontier production model by using a farm- level panel of data. The non- negative technical efficiency effects are assumed to be a function of firm- specific variables. A sample of Spanish farms observed from 1999 to 2002 is obtained from the FADN dataset and used in the estimation of the model. Maximum- likelihood methods are applied in the estimation of the parameters of the model. A primal approach is used to decompose Total Factor Productivity (TFP) growth. Results indicate that farm location, age of manager, tenure regimes of land and whether the farm has adopted organic farming techniques affect efficiency levels . Technical efficiency change, allocative efficiencies and scale effects are found to be the main sources of TFP growth, while technical change seems to be of minor importance. Results also suggest that Spanish olive farms are less efficient relative to other EU farms. This suggests that improvements in the Spanish olive productive capacity after the accession to the EU were not fully implemented in the period of analysis. This may be due to a decline in olive farm incomes as a result of a decline in both public subsidies and in output prices after the mid 1990s.