Adjustment costs and efficiency in Polish agriculture: a dynamic efficiency approach

This paper aims to understand the state of adjustment processes and dynamic structure in Polish agriculture. A dynamic cost frontier model using the shadow cost approach is formulated to decompose cost efficiency into allocative and technical efficiencies. The dynamic cost efficiency model is developed into a more general context with a multiple quasi-fixed factor case. The model is empirically implemented using a panel data set of 1,380 Polish farms over the period 2004–2007. Due to regional differences and a wide variety of farm specializations, farms are categorized into two regions and five types of farm production specializations. The estimation results confirm our observation that adjustment was rather sluggish, implying that adjustment costs were considerably high. According to this study, it will take up to 30 years for Polish farmers to reach their optimal level of capital and land input. Allocative and technical efficiency widely differ across regions. Moreover, efficiencies prove rather stable over time and among farm specializations, although the results indicate that the regions with larger farms performed slightly better.