Scottish Farm Efficiency: trends and drivers from 1989 to 2020

Technical efficiency indicates the rate at which physical inputs are converted into physical outputs. We present estimates of the technical efficiency of Scottish farms by standard farm types over the period 1989 to 2020 using the annual Scottish farm business survey (SFBS) data. We find that all farm types show an average increase in annual technical efficiency growth. However, these are quite low, with Less Favoured Area farms (LFA) and specialist cereal farms, having average growth of around 0.2% per annum. In contrast Dairy and General Cropping farms have grown by an average of 1.0% per annum. Notably, growth rates are much lower, and in some cases negative, in the 4-year period directly after the EU referendum in 2016, compared to the 4-year period directly before the referendum, which may in part reflect uncertainty and reluctance to invest before major agricultural policy reform.
• We find a great deal of variance within farm types, which indicates that for each sector there will be challenges and wide level of performance.
• Key drivers of technical efficiency include farm size and increasing specialisation.
• More farmer led characteristics, such as succession planning and age of the main decision maker, were less consistent estimators.
• Both higher levels of subsidy and off-farm income had a depressing effect on technical efficiency, compared to those farms with lower rates of subsidy to turnover, or higher levels of income on farm, compared to off-farm.
Under the potential for new reform of Scottish agricultural policy, which would support sustainable food production and meet the requirements of a net zero carbon target by 2045, the focus of policy interventions should be on promoting improved resource use within our present farming systems.