Efficiency and Sustainability in Farm Diversification Initiatives in Northern Spain

Abstract

The value-added diversification strategy provides an option for guaranteeing the sustainability of small farms. This study examines how factors related to managerial strategy and socio-environmental sustainability influence the efficiency of diversification initiatives. For this purpose, we use a novel and unique database of value-added ventures implemented by 49 dairy farms located in northern Spain. We construct a production frontier using a Data Envelopment Analysis (DEA) model to estimate technical efficiency. The mean technical efficiency of the initiatives was 0.56 and 0.59 for the constant and variable returns specifications, respectively. Determinants of efficiency are analyzed with a two-step procedure with a double bootstrap. We find that the elaborations of more complex products other than fresh milk are negatively associated with efficiency. However, specialization in one product with different variants and direct sales both have a positive association with efficiency. In terms of socio-environmental variables, there is a positive association between efficiency and the use of quality schemes such as ‘protected designation of origin’ (PDO), the use of organic labelling and the farmer having university education, and a negative association with the percentage of family labor. Our findings support the idea that value-added diversification contributes to more resilient pathways of development and underlines the importance of good quality management of marketing and operational factors.