Input-output concepts, profits and productivity growth: An application using Flemish farm level data

Abstract

Productivity growth, generally defined as output quantity change relative to input quantity change, can be constructed from a number of input-output concepts. Aside from the distinction between partial and multifactor productivity (MFP) measures, different levels of output can also be considered. Following the framework by Balk (2010), we consider productivity at three levels, namely gross output, value added and cash flow. Each of these outputs relate to variant sets of the following input components: capital, labour, land and intermediate inputs. Every input-output concept has its corresponding MFP growth measure with an alternative economic interpretation. The first objective of this paper is comparing these various measures MFP growth. To measure MFP growth, we use index theory because this methodology does not impose any functional behaviour between inputs and outputs. Acknowledging profits, we employ a simple framework that decomposes the evolution of profitability into productivity change and price recovery—the ratio of the output and the input price index. We apply the framework to the agricultural sector using data from the Flemish Farm Accounting Data Network (FADN). The second objective of this paper focuses on the methodological aspects using data at the level of the farm. We focus on data measurement, the construction of various input-output variables (e.g., the user cost of capital, farmers’ self-income) and report these results using a unique database of farm-level data applied to the Flemish agriculture. In addition, we also discuss the specific productivity measurement challenges for this sector. The use of farm-level data applied to the concept of MFP is not popular. Indeed, agricultural productivity growth literature has mostly focused on national MFP measures (see Bureau et al., 1995; Coelli and Rao, 2005) while on the other hand, micro-level MFP literature rather tempt to focus on the manufacturing sector (Bartelsman and Doms, 2000).