Differences in TFP growth among groups of dairy farms in the Netherlands

• Productivity in Dutch dairy farming has been grown on average at a rate of 1.5%.
• Large dairy farms experience higher productivity growth rates than smaller ones.
• Technical change is the primary force behind productivity growth.
• Efficiency changes and scale effects play a secondary role in productivity growth.

The trend towards fewer and larger farms characterising agriculture in most industrialised countries can be partly attributed to larger farms becoming more productive by exploiting the economies of scale inherent in the production technology they employ. This paper examines whether larger and more intensive dairy farms in the Netherlands have been experiencing faster productivity growth than smaller farms, with the objective of determining which types of farms are more likely to prosper in the long run. Classification and regression trees are proposed as a valid way of classifying farms according to their size and farming intensity. At a second stage total factor productivity growth is calculated and decomposed into technical progress, efficiency change and scale effects for each class of farms using Data Envelopment Analysis. The results suggest that, for all classes of farms, productivity growth is driven almost exclusively by technical progress. The rate of technical progress has been higher for large intensive farms, implying that recent technical innovations are more beneficial to this type of dairy farms.