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Significance of pig farms' management for rural development

Conference Paper · January 2014

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Marina Filiposka Jovan Azderski

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Significance of pig farms’ management for rural development

Marina Filiposka1*, Jovan Azderski1

Faculty of Agricultural Sciences and Food, University of „Ss Cyril & Methodius“ in Skopje, Blvd.
1

Aleksandar Makedonski bb, Skopje, Macedonia

*
e-mail: marina2002mk@yahoo.com

Abstract

The Republic of Macedonia is strategically oriented to establish sustainable development

of rural areas, to make optimal use of national resources in terms of efficiency, to increase
the quality and competitiveness of agricultural production and to strengthen the rural
economy. Policies created for ensuring rural development aims to improve the existing
living and working conditions of farmers and rural population. On the other side, farmers
are faced with the challenge to increase their efficiency of production to become more
competitive on the national and international market. Their farm management activities
influence on farms potential and allow farmers to achieve changes and common interests.
The aim of the survey is to analyse the significance of farms efficiency and their influence
on rural development. An empirical analysis is carried out on the data collected by
questionnaires and structural interviews with farmers. Deductive research approach which
includes qualitative method of descriptive analysis is used to analyse farms capacity. For
the analysis, pig farms are chosen as a target group represented all over the country, crucial
for the development of rural areas and domestic economy. The significance of pig farms
for rural development is estimate with econometric methods applying Data Envelopment
Analysis and Tobit regression approach. The results show the significance of farmers’
management to increase the efficiency in consideration of rural development practices.

Key words: efficiency, management practices, pig farms, rural development, significance.

Introduction
European Commission through the Common Agricultural Policy (CAP) considers
agriculture as most important in the rural development measures. It emphasise the role of
agriculture in establishment of new employments, sustainable economic development and
increasing the competitiveness of rural areas (European Commission, 2010). This is
particularly important in the areas where the primary and main business is the agriculture.
As a reason, the European Commission developed a set of rural development priorities
further translated into national strategies and programmes for rural development in each
European country. EU policies implicate a concept of the green economy for sustainable
development of rural areas and initiate the need for fast adaptation on it (Ocampo, 2012).
Following this, the Republic of Macedonia strategy is to establish sustainable development
of rural areas by optimal use of national resources in order to increase the efficiency and
competitiveness of agricultural producers and to strengthen rural economy. Thus,
programmes created for ensuring rural development aims to improve the existing living
and working conditions of farmers and rural population. National programme for
agriculture and rural development (2013-2017) implement and adapt measures for
increasing the competitiveness of agricultural producers and ensure sustainable
development of rural areas that are grouped into the following priorities: priority areas 1 -
increasing the competitiveness of the agricultural sector through informal education of
farmers, investments in new and modern technologies and establishment of agricultural
cooperatives; priority area 2 - protection and management of the environment and rural
areas through the promotion of good agricultural practices for sustainable management of
soil, water and air, organic production and agro-environmental measures considering
production of the domestic species; priority area 3 - improvement of the living
environment in rural areas by creating rural infrastructure, diversification of the economic
activities including development of small businesses and promotion of the rural tourism;
and priority area 4 - encouraging local development of rural areas though education and
local actions for development (MAFWE, 2012).
However, to meet the new policy requirements and regulations farmers need to increase
their efficiency and to become more competitive on the national and international market.
According to MAFWE (2007), attending high production efficiency is a challenge due to
the inefficient farm management practices followed by inadequate technology and high
production costs. In this sense, the aim of the study is to analyse the significance of farms
efficiency in respect to rural development.

Material and methods

The analysis the technical efficiency (TE) of pig farms in the Republic of Macedonia
considering rural development measures as a priority comprises of a two stage approach.
The first stage solves input and output optimisation problems (Coelli et al., 2005; Farrell,
1957). In the second stage an econometric regression of TE is made in a set of explanatory
variables chosen to reflect rural development policies. This approach is previously used in
a number of studies (Lansink, 2004; Johansson and Ohlmer, 2007; Manevska-Tsevska, et.
al. 2011; Latrufe, et. al. 2010).

First-stage analysis – Technical efficeincy

The methodological approach of first stage analysis is shown in Figure 1.

Figure 1. Data Envelopment Analysis approach

The analysis is based on the framework of Farrell (1957) considering inputs and outputs
quantities used in production to estimate technical efficiency (TE). A non-parametric
method is applied in the TE analysis by using Data Envelopment Analysis (DEA) approach
developed by Charnes et. al. (1978). The efficiency measures are calculated by using a
computer program DEAP version 2.1 (Coelli, 1996). It calculates the effciency by using
mathematical linear programming to estimate a frontier production function as a set of
DMUs and gives relative efficiency of each unit. The scores of TE lie between 0 and 1,
with 1 corespondaning to full technical efficiency (100%), while lower scores indicate
lower TE. Technical efficiency can be explain through input and output perspective. Farrell
(1957) explain that TE from input oriented perspective measures the ability of producers to
lower the quantity of inputs use in the production without changing the output quantities.
Considering that in the agricultural production farmers can not influence on the nature of
the produced output, but can manage the type, quantity and quality of utilized inputs, we
assumed input perspective as more appropriate for analysis in this study.
Moreover, production characteristics affect the choice of economic scale (Manevska-
Tasevska et. al., 2011). The Scale Efficiency (SE) on which farms operate is a ratio
between constant and variable return to scale and shows weather a production is operating
under Decreasing Return to Scale (DRS) if the production is bigger than the most
productive scale size or Increasing Return to Scale (IRS) which indicates that the
production is smaller than the most productive scale size (Charnes, et. al., 1995). Pig
production is very sensitive to external factors such as climate, market and political
regulations, etc. Variable Return to Scale (VRS) is considered as more appropriate for the
analysis. Mathematical DEA model that extimates TE under VRS input perspective is
giveen in the equestion 1.

(1)

where θi represents technical efficiency of the i farm, X and Y are matrices of all inputs
and outputs of N farms in the sample, Y λ and Xλ are estimated frontier efficiency, and
N1λ = 0 is a constraint added because of the VRS.

Second-stage analysis – eonometric regression of explanatory variables

Second-stage approach uses Tobit model to provide econometric analysis of the

explanatory variables on TE score obtained in the first-stage analysis. Tobit model
(represented by the equestions 2 and 3) asses the relationship between non-negative
dependent variable θi equal to 1, the latent variable θi* and the vector of independent
variables zi (Manevska-Tasevska, 2011).

(2)
(3)
where θi s the TE score of the ith farms, zi is the influencing variable, ui is an error term
assumed to have a normal distribution.

Variables used and hypotheses

Data are collected through questionnaires and on field interviews with farmers. In respect
to the research field of interest, data are collected from the primary pig producers in the
Republic of Macedonia. 21 pig farms with commercially oriented production were selected
for the analysis (farms that have more than 10 sows). Compared with the official number
of farms registered in 2007 (SSO, 2007), the research includes 60% of the total pig farms
in the country. Farms TE is estimate considering variables such as inputs and outputs
which comprise the production process in 2012. Figure 2 gives an explanation of the
production process of pig farms including inputs used and outputs of the production and
factors that influence the production in respect to managerial characteristics and rural
development policy.

Figure 2. Data consider in the analysis including TE variables and influencing factors in
respect to rural development
In this research, three input and one output variables are taken into analysis. Inputs
considered in the analysis are devided on feed, labor and other inputs. Feed input is
estimated in total kilograms (kg) of feed spend for pigs’ consumption during the analysed
period. Labour input represents the number of workers that are directly involved in the
production activities including both family members and employees. Under other inputs
are sumed all other variable and fixed inputs including costs for energy, materials and
services. The output represents aggregated final product in total kilograms normalized per
livestock unit (LU). This approach is used to simpliphy the estimates of different products,
such as piglets, pigs and sows, that vary in meat quantity and quality and have different
market price.
Variables selected in the second-stage econometric regresion explain the efficiency scores.
Farm efficiency is influenced by many factors including managerial decisions, farm
characteristics, lows and policies and environmental characteristics. The explanatory
variables selected in this research are choosen in order to reflect the rural development
measures and are used to evaluate how this targets influence farm efficiency. In that way,
explanatory variable are represented by 7 variables: accessibility of the farm (AFarm), total
area of the farm (TArea), total number of sows (NSows), type of technology used for
production (TTech), farmer’s interest to implement new technology (INTech),
participation in cooperatives and associations (PCAso), farmer’s informal educatin (IEdu).

Results and discussion

The results show that there is a big difference between farms capacity. Indeed, only 30% of
pig farms in the country are big and operate with more than 750 sows. The other farms
have less than 50 sows. Subsequently, there is a big difference between the final
production quantities. In Graph 1 is shown the final production of the analysed farms in
total kg/LU. According to the analysis, the production is not the same even between farms
with similar capasity and there are big farms that produced lower output quantities and
small farms that have increased there output quantities.

Graph 1. Summary of the total production of pig farms in kg (N=21)

On the other side, analysis of the inputs consumption is made (Graph 2). The results show
that the biggest utilisation in the production costs have feed input. In relation, feed is the
most important imput for pig production and farmers spend more than a half of their costs
in feed purchase or production. Labour input takes only 7% of the average costs of
production. Purchase of materials is the third highest cost of production after the services
costs, while the energy is the less consumable (mostly for electricity and heating of piglets)
and takes only 3% of the average production costs. Moreover, the analysis show that
farmers spend more on veterinary services, insemination, hygine and desinfection materials
than on ecology and new technologies of production.

Graph 2. Percentage displey of inputs according to their costs (N=21)

First stage results: efficiency scores

TE of pig farms is analysed from both CRS and VRS (Table 1). The CRS assamptions are
appropriate when the analysed firms are operating under optimal scale. As it is confirmed
by the literature, average efficiency score under VRS is bigger than under CRS due to the
imperfect competition, government regulations, etc. (Coelli, et. al., 2005).

Table 1. Efficiency scores and frequent distribution of farms (N=21)

Number of farms
per efficiency class CRS TE VRS TE SE
≥ 0,40 < 0,50 3 1 1
≥ 0,50 < 0,60 5 1 3
≥ 0,60 < 0,70 2 1 1
≥ 0,70 < 0,80 2 1 3
≥ 0,80 < 0,90 3 2 5
≥ 0,90 < 1,00 6 15 8
Mean 0.736 0.908 0.814
SD 0.199 0.164 0.166
Min 0.420 0.481 0.486

Considering that farms are not operating under optimal scale, VRS is assumed to be more
appropriate for agricultural production analysis. However, the average efficeincy score in
both constant and variable return to scale are not 100% efficienct, which means that there
are differences between pig farms. 73% efficiency score under CRS explain that there is a
difference between farms structure. The efficiency score under VRS is 90% which means
that the utilisation of inputs in the production process is balanced and most of the farms
have simmilar production and management activities. In both scales there are inefficient
farms and some of them operate with efficiency score lower than 50%.
On the other side, most of the farms under VRS, 71% operate with efficiency score bigger
than 90%. The situation under CRS is quite different and only 28% of the analysed farms
operates under the highest efficiency class, while 38% are around 50% efficient. The
efficiency scores of the analysed farms under CRS are shown in Graph 3. Here, it should
be emphasized that farms order is according to their size, starting with the biggest farms
with more than 750 sows, than the medium farms that have around 50 sows and at the end
are the smallest size farms with not more than 10 sows. Furthermore, the highest efficiency
scores have the biggest pig farms in the country. The efficiency scores decreases with
decreasing of the farm size.

Graph 3. Efficiency scores of pig farms that operate under CRS (N=21)

Graph 4 represents the average efficiency scores under VRS. According to the graph, most
of the farms operate on the frontier line and face full technical efficiency. The size is not
significant here, since the efficiency scores vary between all farms. Conversely, most of
the big farms face average technical efficiency equal to 1.

Graph 4. Efficiency scores of pig farms that operate under VRS (N=21)

Second stage results: influence of variables in respect to rural development

The influence of variables chosen in respect to rural development policies was estimate
with Tobit regression. Technical efficiency score obtained by DEA approach was used as a
dependent variable in the Tobit model. In that way, rural development targets were used as
explanatory variables. Tobit regression results show that there is a connection between TE
and managerial activities in respect to rural development (Table 2).
Table 2. Tobit regression results showing the connection between TE and management
activities in respect to rural development (N=21)
Coef. Std. Err. t P>|t|
Accessibility of the farm (AFarm) -0,018 0,086 0,21 0,834
Total Area (TArea) 0,103 0,057 1,80 0,095c
Total number of sows (NSows) 0,213 0,057 3,71 0,002a
Type of technology (TTech) 0,147 0,035 4,18 0,001a
Interest in new technology (INTech) -0,165 0,066 -2,51 0,023b
Participation in cooper. or assoc. (PCAso) 0,052 0,068 0,76 0,455
Informal education (IEdu) 0,075 0,024 3,08 0,007a
Log likelihood 13,933
Sigma 0,132
Note: a statistically significant at 1%, b statistically significant at 5%, c statistically significant at 10%

According to the results, five of analysed seven variables show significant influence on
TE. Accessibility of the farm (AFarm) was hypothesised to have a significant influence on
TE regarding transportation costs, but was not confirmed by the results. Also, participation
in cooperatives and associations (PCAso) was assumed to have a high impact on proper
managerial decisions which should increase TE, especially because this approach minimise
the uncertainty of the imperfect market, minimise production and selling costs and increase
farmers information. Instead, it was found that participation in cooperatives and
associations is not significant for farms TE. An important positive influence was
hypothesised and confirmed for total area (TArea) which is significant at 10%. Statistical
negative significance of 5% show farmers interest in providing new technology (INTech)
which effects TE. Moreover, total number of sows (NSows), Type of technology used in
the production (TTech) and informal education of farmers (IEdu) show positive
significance at 1% that confirm the hypothesis that these rural development targets are
important and influence on TE. All significant explanatory variables are important to the
ability of farmers to not overuse inputs and to manage their use in a way to comply with
the rural development policies in order to increase their TE.
The significance of rural development targets is also shown below (Graph 5). The graph
explain that 5 influencing variables out of seven are statistically significant and are closer
to 0, while the remaining two variables are not considerable for increasing farms TE.

Graph 5. Significance of the influencing variables (N=21)

According to the results, farms efficiency and productivity influence on development of
rural areas. The efficient farms have high productivity and provide successful and
sustainable businesses that indirectly influence on development of rural areas. They
stimulated new employments, invest in new technology and infrastructure, provide
environmental protection measures and increase the rural economy. Additionally, the
investments in efficient farms affect the sustainable development of rural areas by
remaining of the rural population on their birthplaces and increase rural tourism.

Conclusion

This paper analyse TE of pig farms in the Republic of Macedonia in respect to rural
development. The efficiency scores results show that substantial improvements of the farm
efficiency are possible if farmers use more optimal combinations of input. Analysis of the
scale efficiency proves that the average TE is 73% under CRS and can be improved by
10% under VRS. Furthermore, around 70% of the farms operate under IRS which indicates
that farms can benefit from growing, while 27% operate under DRS showing that farms are
too big and used too many inputs in the production.
We believe that the paper can help explain the connection and the importance of the
analysis for rural development. Indeed, it is important the objectives of any rural
development programme to be clearly defined and to be easily accessible to farmers in
order to be implemented in the production practices (Fee, 1985; Manevska-Tasevska,
2011). Considering the results, 5 of 7 explanatory variables had a statistically significant
influence on farms efficiency. We found that more efficient farms are those that have
bigger area, bigger number of sows and invest in new technologies and informal education
of farmers. Significantly, those farmers who follow the rural development programmes and
implement best practices in their farms everyday activities have bigger TE. On the other
side, less interest in new technology investments and conventional production also
influence on farms efficiency. This is relevant for small and medium farms that have
limited capital to invest in new technologies.
According to the results, rural developments policies can help to improve farm efficiency
and thus sustainability of rural areas. In that way, rural development policies and
programmes influence on the productivity and efficiency of pig farms, as well as on the
other farms in the country, by requesting new market requirements and regulations and the
need for fast adaptation of farmers. This is very important due to the imperfect competition
and market regulations that sometimes unable farmers to adapt and to follow new
requirements. It is necessary farmers to pay more attention on managerial capacity building
and explore activities that influence on efficient decision making.
Further studies and research are needed to use other variables in the analysis of the
sustainability of farms and rural areas from scientific perspective. They can improve rural
development policies in a way to increase farms efficiency, and consequently, can trigger
competitiveness and sustainable economic development of rural areas.
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