Productivity Growth in German Dairy Farming using a Flexible Modelling Approach

A random-coefficients specification of an output distance function is used to measure and decompose productivity growth in German dairy farming. This specification can accommodate heterogeneity with respect to the technology employed by dairy farms, allowing for specialised and non-specialised farms to be included in the analysis. The proposed modelling approach is favoured by the data when compared with the conventional translog specification of distance functions. The average total factor productivity growth rate for German dairy farms is estimated at 1.1%, with the technical progress component contributing most of this growth