Productivity Analysis
Total factor productivity describes the internal efficiency of the production process. It measures a farm's performance in transforming inputs into outputs. It is obtained by dividing the total volume of production by the quantity of inputs used to generate that production. Productivity is not affected by changes in the prices of outputs and inputs or by agricultural subsidies.
Using the arithmetic averages of two consecutive years (t) as weights for input and output components (the Törnqvist-Theil approximation), the index is obtained from the following formula:
xx
where:
Qt = Divisia index at time t Sjt = cost (revenue) share of input (output) j in total input purchases (outputs) at time t qjt = quantity of input (output) j at time t k = number of inputs (outputs)
Calculation in the Agricultural Productivity Development Service
Productivity indices are calculated separately for each production line as a group. The analysis includes up to approximately 90 revenue items and 90 cost items per farm. Revenue items are deflated using the agricultural producer price indices published by Statistics Finland, while cost items are deflated using Statistics Finland's agricultural input purchase price indices. This converts revenue and cost items into output and input quantities.
Each output item is weighted by the average revenue share of the current year and the previous year. Similarly, each input item is weighted by the average cost share of the current year and the previous year.
The sum of the weighted output items is divided by the sum of the weighted input items (normalized). This yields a productivity index describing the change in productivity between years.
Productivity indices are calculated for groups of farms. Farms are weighted using the EconomyDoctor weighting system by region, production line and farm size class to ensure representative results. The average productivity for the period under review is calculated as the geometric mean of the annual productivity indices.
Further Development of the Service
The system will be expanded in the future so that productivity measures can also be calculated separately for each farm included in the profitability bookkeeping system. This will enable farm-specific productivity results to be provided to participating bookkeeping farms.
When results are calculated at the individual farm level, the productivity indices will first be weighted by total revenue when calculating the average productivity of a group. After that, the results will be weighted using the standard EconomyDoctor weighting system by region, production line and farm size class.
Revenue and cost items are converted into output and input quantities by deflating them with the appropriate indices. The long-term objective is to move towards the use of region-specific prices and, eventually, farm-specific prices in all cases where price information is available.
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