Heterogeneity in the Level of Technical Efficiency of Farms in the European Union Regions and its Relationship to Indebtedness

Aim The purpose of the study is to determine the relationship between the level of farm indebtedness and their technical efficiency. Material and Methods In the paper Greene’s “true” fixed effects model and regional Farm Accountancy Data Network data are used to calculate efficiency and its determinants in the stochastic frontier analysis framework. Results The results indicate that higher dependence on external capital deteriorates technical efficiency level. The existence of increasing returns to scale in the EU agriculture and important role of structural factors (region-specific heterogeneity) is proven as well. The latter disturbs the traditional division between ‘new’ and ‘old’ Member States in terms of agricultural production efficiency. Conclusions Assuming that debt increases as a consequence of the investments, the results may indicate overinvestment. It may be caused by the ease of obtaining loans on preferential terms or by the need to finance green investments which do not translate into production growth. This conclusion reveals the need to better address credit-based support instruments. On the other hand, investments, in particular those of innovative nature, may disturb standard production process and increase efficiency only in the long run.