Technical Efficiency in the Sheep Dairy Industry: an Application on the Sardinian (Italy) Sector

Sardinia (Italy) is one of the most important European regions for sheep dairy and sheep milk cheese production. However the Sardinian sheep dairy industry is currently going through a dramatic crisis, and verifying whether it can recover part of its profitability is now a priority. Attention is now focused on estimating whether the sheep dairy firms can improve their productivity by more efficient use of their available technical resources. This paper aims to estimate technical efficiency in the Sardinian sheep dairy industry. A stochastic frontier analysis approach was used on panel data from 36 sheep dairy firms over the period 2004-2009 in order to assess whether there are some margins for technical improvements in productivity, given the existing level of technology. A comparative analysis of private firms and cooperatives was also carried out, in order to establish if there were differences in the technology they used and/or their efficiency in using technical inputs. Our findings suggest that there is technological homogeneity among the firms and between private firms and cooperatives. Technical efficiency is equal to 0.905 and it is significantly different between private firms (0.933) and cooperatives (0.877). Our findings have certain implications for what policies should be implemented in order to improve efficiency in the sector and on the orientation of decision makers strategies.