Total Factor Productivity and its Decomposition of Multi-Output Paddy Farming in Japan

The objective of this article is to analyze total factor productivity (TFP) change and its components of paddy farming that produces multiple outputs under policies controlling the production of food rice in Japan from 2004 to 2014. Using a parametric estimation technique of the Malmquist productivity index with a stochastic input distance function and farm-level panel data, we measure TFP change and decompose it into technical changes, a technical efficiency change, and scale efficiency changes. Results show that the TFP of paddy farming in Japan stagnated through the period, with moderate technological progress offset by deteriorating technical efficiency. The existence of technological progress and technical inefficiency is also confirmed by statistical testing. Technical change has some bias toward changing the output mix. Moreover, scale efficiency is also deteriorating, but all the farms produce under increasing returns to scale technology. Our results suggest that technical efficiency improvement and exploitation of scale economies are essential, as well as keeping an expansion of the technological frontier for Japanese paddy farming to recover its productivity growth. A historical process of Japanese agriculture would provide beneficial insights for other Monsoon Asian countries likely to experience social and economic transitions similar to those in Japan.