Subsidies and technical efficiency: An application of stochastic frontier and Random-effect Tobit models to LFA Spanish olive farms

Abstract

The most of Spanish olive farms are concentrated in Less-Favoured Areas (LFA) with the majority of producer areas are under Objective 1 of the EU Regional Policy. The EU has long recognized such distinctive characteristics of those holdings with a specific support measures aiming to prevent the abandonment of olive groves as well as to support sustainable development of this sector. The main objective of this study is to evaluate the impact of LFA payment on the olive farms technical efficiency. Two sample farms located in LFA (63 farms receiving LFA payment support and 99 farms do not) have been observed from 2000 to 2004. A stochastic frontier production and Random-effect Tobit models have been used. Results indicate that LFA payment, age of manager, workforce composition and farm size affect efficiency levels. The LFA payment coefficient indicates a significant negative impact on the technical efficiency of Spanish olive farms. Farms that not receive LFA payment has a technical efficiency rate 0.15 percentage units upper compared to those that receive this payment.