Philippe Jeanneaux, Hervé Dakpo and Hélène Blasquiet-Revol The performance of the strategy of differentiation of dairy farms in France JM FAO CIHEAM 2014 June 24-25-26, 2014 - Clermont-Ferrand, France
Motivation: Disparities within strategies Dairy Farms Performances FADN sample (2011) ; (OTEX 45 (ex41)) Criteria Auvergne Franche- Comté Annual Work Unit Excluding Employee (AWUEE) Average milk production per farm (L)/AWU Rhône- Alpes Bretagne Lorraine Nord-Pasde-Calais 1,52 1,85 1,76 1,77 2.05 1,55 162 858 145 858 132 891 206 432 168809 193 654 Profit before tax (PBT)/AWUEE ( ) 21320 30594 20790 35511 33967 30307 Strategy of Differentiation Cheese PDO (Protected Designation of Origin) Cost Leadership Strategy Standard Milk
Issue How to explain these differences in economic performance levels: - for both strategies? - and within the strategy of differentiation?
Propositions Proposition 1: The PDO dairy farms performance depends on their individual capacity to be efficient Proposition 2: The PDO dairy farms performance depends on their capacity to design specific rules and institutions of the PDO Supply Chain to capture value 4
Framework: Efficiency Measurement with Data Envelopment Analysis The production frontier is built with the more efficient farms : C and D F The production frontier is determined by linear programming DEA : non parametric method based on the notion of distance function (Shephard, 1970)
Framework: Technical efficiency measurement
Framework:Technical efficiency measurement in 2 dimension in 2 steps Step 1: Technical efficiency with Physical Outputs Step 2: Technical efficiency with Outputs in real monetary value
Empirical Application: Data description Data Base: FADN (Farm Accountancy Data Network) 417 dairy farm observations Year: 2011 Otex 45 (ex Otex 41) Regional delimitation to compare the 2 strategies (cost leadership vs. Differenciation) 6 French regions : Auvergne, Bretagne, Franche-Comté (Alt.>600) Lorraine, Nord-Pas-de-Calais, Rhône-Alpes (Alt.<600) 4 inputs: Utilized land ; Farm labor ; Operational expenses - Structural costs 2 ouputs: milk ; meat
Inefficiency (physical outputs) Results: Efficiency Scores Total Scale Tech Auvergne 0.77 0.87 0.89 Franche-Comté 0.72 0.89 0,81 Rhône-Alpes 0.74 0.87 0.86 Bretagne 0.92 0.97 0.95 Lorraine 0.84 0.96 0.88 Nord-PasdeC 0.89 0.96 0.93 Strategy of Differentiation Cheese PDO Cost Leadership Strategy Standard Milk 9
Inefficiency (physical outputs) Total Results: Inefficiency Scores Scale Inefficiency (output in monetary value) Pure Tech total Scale Pure Tech Auvergne 0.77 0.87 0.89 0.76 0.89 0.87 Franche-Comté 0.72 Improvement 0.89 0,81 0.88 0.95 0,93 Rhône-Alpes 0.74 0.87 0.86 0.77 0.88 0.89 Bretagne 0.92 0.97 0.95 0.90 0.97 0.93 Lorraine 0.84 0.96 0.88 0.84 0.96 0.88 Nord-PasdeC 0.89 0.96 0.93 0.88 0.95 0.93 2011 (FADN) Sample Auvergne Bretagne Average Milk Price at farm gate ( /1000L) Franche- Comté Rhône- Alpes Nord-Pasde-Calais Lorraine 337 340 413 362 340 338 10
Discussion Total Technical Efficiency (with physical outputs) is better for farms commited in the Cost Leadership Strategy than those engaged in the Strategy of Differenciation When considering the performance including real milk price, farmers from Franche-Comté (massively engaged in the PDO Comté) are as efficient as farmers involved in the Cost Leadership Strategy Franche-Comté Dairy farms are efficient because farmers design the governance of the PDO Supply chain due to their capacity to control small cheese first processors (Barjolle and Jeanneaux, 2012)
Theoretical and empirical perspectives Analysis of the factors that explain the performance - internal factors: debt, education, age, capitalistic intensity - external factors: Social Capital, Supply Chain Diachronic Analysis (1980, 1990, 2000, 2011) to take into account technical progress Eco-efficiency analysis: inclusion of undesirable outputs in production technology modeling
Philippe Jeanneaux, Hervé Dakpo and Hélène Blasquiet-Revol Thank you for your attention
Appendix
Production Frontier with Data Envelopment Analysis The production frontier is built with the more efficient farms : C and D F Far m X1/Y X2/Y X1+X2/ Y Efficienc y Score C 15/100 25/10 40/100 1 D 35/100 0 5/100 40/100 1 A 25/100 55/10 80/100 0.75 B 40/80 0 32/80 72/80 0.70 X1: Input 1 ; X2: Input 2 ; Y: Output The production frontier is determined by linear programming DEA : non parametric method based on standard neoclassical axioms of production, and the notion of distance function (Shephard, 1970)
Criterions Annual Work Unit Excluding Employee (AWUEE) Average milk production per farm (L)/AWU Total Utilised Agricultural Area (UAA) (ha) Livestock unit (LU) of herbivores Table 1. Summary characteristics of the sample (2011) (OTEX 45 (ex41)) Auvergne Franche- Comté Rhône- Alpes Bretagne Lorraine Nord- Pas-de- Calais 1,52 1,85 1,76 1,77 2.05 1,55 162 858 145 858 132 891 206 432 168809 193 654 82 108 87 81 136 75 79 91 73 98 125 103 Production/AWU ( ) 102564 121594 95762 133156 126821 137932 Farm net value added 23376 38861 20516 43693 36052 41036 FNVA ( )/AWU Profit before tax 21320 30594 20790 35511 33967 30307 (PBT)/AWUEE ( ) Rate of liabilities (%) 30% 33% 32% 44% 41% 42%
Four inputs - Utilized land (hectares) - Farm labor (full-time equivalents) - Operational expenses ( 2011): animal feeding, fertilizers,pesticides and other rearing costs - Structural costs ( 2011): depreciation, maintenance costs, fuels and lubricants expenses, overheads Two outputs - Milk -Meat -Farms located at an altitude of more than 600 m for Auvergne, Franche-Comté, Rhône-Alpes to examine more closely the PDO impacts
Efficiency Scores of dairy farms in the six regions of the sample (2011) Total efficiency (physical outputs) Total efficiency (output in real monetary value) Scale efficiency (physical outputs) Scale efficiency (output in real monetary value) Pure technical efficiency (physical outputs) Pure Technical efficiency (output in real monetary value) Auvergne 0.77 0.76 0.87 0.89 0.89 0.87 Franche- Comté 0.72 0.88 0.89 0.95 0,81 0,93 Rhône- Alpes 0.74 0.77 0.87 0.88 0.86 0.89 Bretagne 0.92 0.90 0.97 0.97 0.95 0.93 Lorraine 0.84 0.84 0.96 0.96 0.88 0.88 Nord-Pasde-Calais 0.89 0.88 0.96 0.95 0.93 0.93
Discussion Total Technical Efficiency (with physical outputs) is better for farms commited in the Cost Leadership Strategy than those engaged in the Strategy of Differenciation When considering the performance including real milk price, farmers from Franche-Comté (massively engaged in the PDO Comté) are as efficient as farmers involved in the Cost Leadership Strategy Franche-Comté Dairy farms are efficient because farmers design the governance of the PDO Supply chain due to their capacity to control small cheese first processors (Barjolle and Jeanneaux, 2012)
Theoretical modelling: 3 possible productivity improvements for farms 1 : by improving its efficiency 2 : by exploiting economies of scale 3 : by incorporating technological progress and Latruffe, 2010.