An analysis of technical efficiency in Icelandic dairy and sheep farms

Usable agricultural land in Iceland is predominantly represented by permanent grasslands and pasture used for livestock grazing, while the cultivation of arable crops such as cereals and potatoes has a very modest incidence on the total agricultural surface area. The main purpose of this research, therefore, was to assess the technical efficiency of dairy and sheep farming across Iceland’s regions using annual census data for the years 2008 and 2017. The assessment of the technical efficiency of farms – one that is able to analyse multi-input/output production functions – has been estimated through the use of the non-parametric approach of Data Envelopment Analysis (DEA). The research findings have highlighted the need for farmers to reduce certain inputs such as labour costs and general productive overheads, as well as to address their efforts to extensive forms of livestock farming, notably sheep rearing, which is able to take advantage of the abundant and rich grasslands. In general, sheep farms have been found to be technically more efficient than dairy, while farms located in the capital region have been shown to have lower levels of technical efficiency overall.