Comparison of Farm Efficiency in Market and Transition Economies: Application of Data Envelopment Analysis to East and West Germany*

CLAUS M. BRODERSEN1 and HOLGER THIELE2

1 University of Giessen, Institute of Farm Management, Giessen, Germany
2 University of Giessen, Institute of Agricultural Economics, Giessen, Germany

Abstract

BRODERSEN, C. M. and H. THIELE, 1999. Comparison of farm efficiency in market and transition economies: application of data envelopment analysis to East and West Germany. Bulg. J. Agric. Sci., 5:337-345

Agricultural reforms in Central and Eastern Europe have produced several new farm structures which differ extremely from the former farms under central planning. The new farms also differ from the old farms in market economies. A lot of research questions arise concerning the efficiency of the new farms. First results of efficiency analysis showed that the successors of former collective farms are more efficient than expected (Mathijs and Swinnen, 1997; Thiele and Brodersen, 1997). But also the large family farms especially in partnerships are more efficient than the average farm in Eastern Germany. Particularly for those CEECs which intend to join the European Union within the next years, one of the main questions occurred in the transition process is the comparative efficiency of these new farms compared to western farms in market economies. Concerning the scale effects and the low man land ratio it could well be that the new farms are more efficient than farms in market economies. Hence, there is a large demand for empirical research of the relative farm efficiencies in market and transition economies.
Thus the purpose of this paper is to present first empirical analysis on the relative efficiency of farms in market and transition economies using a non parametric frontier Data Envelopment Analysis Model (DEA Model). The comparison of East and West Germany is a good example studying differences of farm efficiency in old and new market economies, as the basic economic conditions in both regions are quite similar but the initial situations were quite different. We are analysing the data of 229 farm groups (111 West German farm groups, 118 East German farm groups) covering the transition period 1992/93-1995/96.
The paper is divided into four sections: the first section focuses on differences in farm structure between East and West Germany. In section two the theoretical background of Data Envelopment Analysis (DEA) will be summarized. The third section of the paper questions the lessons that might be drawn from the scale and technical efficiency results between East and West German farms. The last section presents conclusions of the first results we got from our analysis.

Key words: efficiency, data envelopment analysis, constant return to scale, variable return to scale, scale efficiency, technical efficiency

* Paper presented at the 58th EAAE Seminar 1998 on: „Nature, Evolution and Efficiency of Farm Structures in CEECs and FSU" organized by the University for National and World Economy in Sofia, Department of Agrobusiness, from 29th May until 30th May 1998. Adress: Claus M. Brodersen, Institute of Farm Management, Senckenbergstr. 3 D-35390 Giessen, Germany, Phone (+49) 641-99-37244, Fax (+49) 641-99-37249, email Claus.M.Brodersen@agrar.uni-giessen.de Holger Thiele, Institute of Agricultural Economics, University Giessen, Diezstrasse 15, D-35390 Giessen, Germany, Phone (+49) 641-99-37063, Fax (+49) 641-99-37069, e-mail Holger.Thiele@agrar.uni-giessen.de.