Profitability and efficiency of Czech dairy farms in LFAs

Abstract

The Czech dairy sector experienced dramatic changes after the accession of the Czech Republic to the European Union. The development after the year 2004 can be characterized by a reduction in the number of cows, growth in the milk yield, capital market imperfections, strong dependency of the local farm price on the world market price development and strong dependency of farm performance on policy measurement, namely quotas and subsidies. The aim of the paper is to evaluate the profitability and efficiency of Czech dairy farms from the point of view of less favoured areas (LFAs) and with respect to the policy measurement changes. The evaluation will be addressed using two main methods, namely stochastic frontier estimation and Spearman correlation coefficient computation. The calculations and estimations are based on unbalanced panel data of Czech dairy farms–local entities drawn from the Registr32 database and the State Agricultural Intervention Fund database. The data set covers the period from 2004 to 2013.