The impacts of regulated notions of quality on farm efficiency: A DEA application

Abstract

Recent European Union policy has attempted to regulate agricultural quality production through schemes that either place emphasis on the physical properties and the geographical zone of production of denominated products or on methods and processes of production of organic products. This paper attempts to examine the effects of these two distinct regulated notions of quality on farm efficiency, by estimating efficiency scores using data envelopment analysis (DEA) on a sample of Greek black currant producers who either employ conventional methods of production or organic methods, and who are located either inside or outside a denominated zone of quality production. Findings indicate that the location of the farm significantly affects the technical and scale efficiency scores in the sample of conventional producers, while it does not have any statistically significant effect in the sample of organic farmers. Thus, regulating quality in terms of organic production weakens the effectiveness of regulating quality in terms of the geographical area and denomination of production. Due to these conflicting impacts of quality policy on farm efficiency, the incentives for the cultivation of organic products should apply only outside the denominated areas of quality production.

Introduction

In 1991 and 1992, a series of European Union Regulations introduced a formal institutional framework of rules and procedures for the production of (i) organic agricultural products, and (ii) denominated food products, namely, foodstuffs labeled as products of Protected Geographical Indications (PGIs), products of Protected Designations of Origin (PDOs), and products of Traditional Specialty Guaranteed (TSGs) (Commission of the European Communities, 1991, Commission of the European Communities, 1992a, Commission of the European Communities, 1992b). These policy measures form an integral part of the ongoing effort of EU planners to reform the Union's Common Agricultural Policy (CAP) in the face of: (i) increasing consumer preference for food quality (e.g., Eurobarometer, 1996; Dimara and Skuras, 2003) and food safety, following recent alarming events such as the BSE outburst and dioxine-poisoned food, (ii) concerns about environmental problems linked to current farming practices, and (iii) concerns about the survival of EU farm operations in an increasingly liberalized, international marketplace.

Institutionalizing the production of organic and denominated farm products may be viewed as a strategy which attempts to address all three considerations above. On the one hand, it addresses preferences for food quality and safety and environmental concerns. On the other hand, it introduces a distinctly defined mechanism for farm product differentiation, which may help European farmers develop market niches in an increasingly competitive global economy.

The actual implementation of these quality-oriented regulations provides the applied economic research with an interesting field of study. In the first place, the adoption of these new farming modes, which are governed by specific rules, may be expected to affect farm management, and more specifically, the farm's technical efficiency, that is the ability of the farmers to obtain maximal output from the inputs they actually use. In the case of Greece, the technical efficiency of farms that have adopted organic farming techniques has recently been studied for a number of crops (Tzouvelekas et al., 2002).

An additional issue of interest to applied economists is how farm efficiency will be affected when more than one of these quality-oriented regulations are simultaneously adopted by farmers. The exploration of this question is largely empirical and worth pursuing, primarily for policy reasons. More explicitly, if all such regulations can become available to every farmer, with no restrictions whatsoever as to how many or which ones the farmer can adopt, and this adoption has an implicit impact on farm efficiency, then useful insights may emerge for policy planners. For example, there might be cases wherein allowing farmers to register with one additional quality regulation will reduce efficiency differentials existing for farms operating under another quality regulation.

Within this context, the objective of this paper is to assess the implicit impact of multiple EU quality-oriented regulations on farm efficiency and discuss its policy implications. To that end, we utilize existing methodological developments in the area of data envelopment analysis (DEA) to study the case of Greek black currant producers who are eligible for both denominated (i.e., PDO) as well as organic currant production. Clearly, the focus of this study is not on advancing methodological procedures, but rather on assessing possible conflicting or complementary facets in the implementation of the EU quality-oriented regulations.

The remainder of the paper is organized as follows: the regulated notions of quality and the institutional framework of currant production in Greece are described in the next section; the methodological framework and the data used are presented in Section 4; the estimation results are discussed in Section 5; policy implications and concluding remarks follow.