Accounting for Heterogeneity in Performance Evaluation of Norwegian Dairy and Crop-Producing Farms

Abstract

It is critical to analyze the performance of enterprises to achieve sustainable agricultural development. Several studies have been conducted to assess farm performance. However, the studies have been criticized for failing to account for farm heterogeneity (which is frequently unobserved) in their evaluation of Norwegian agricultural performance. Technically, a farm is efficient if it can produce a certain amount of output with the fewest possible inputs and no input waste. In this paper, efficiency scores are calculated using a production function with both a random intercept and a random slope parameter, addressing the issue of unobserved heterogeneity in stochastic frontier analysis. Using Norwegian dairy and crop farms as a case study, we demonstrate the viability of improving the agriculture industry and reducing resource waste. The case study was established on data collected from 5884 dairy farms and 1880 crop farms from the years 2000 to 2019. According to the empirical findings of the case study, dairy and crop producers used inefficient technologies and squandered production resources. If all farmers follow a sustainable and efficient path to produce agricultural output, they could increase output by 15–18%. Farmers must follow sustainable paths, and politicians must encourage farm experience exchange so that less efficient dairy and crop-producing farms can learn from the most efficient farms to achieve sustainable development.