A Stochastic Production Frontier Analysis of the Brazilian Agriculture in the Presence of an Endogenous Covariate

Production frontier analysis aims at the identification of best production practices and the importance of external factors, endogenous or not, that affect the production function and the technical efficiency component. In particular, in the context of the Brazilian agriculture, it is desirable for policy makers to identify the effect on production of variables related to market imperfections. Market imperfections occur when farmers are subjected to different market conditions depending on their income. In general, large scale farmers access lower input prices and may sell their production at lower prices, thereby making competition harder for small farmers. Market imperfections are typically associated with infrastructure, environment control requirements and the presence of technical assistance. In this article, at county level, and using agricultural census data, we estimate the elasticities of these variables on production by maximum likelihood methods. Technological inputs dominate the production response, followed by labor and land. Environment control has a positive net effect on production, as well as technical assistance. The indicator of infrastructure affects positively technical efficiency. There is no evidence of technical assistance endogeneity.