Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems by...

Structure and Efficiency of the Italian Agri-food Industry: Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systemsan analysis of the Local Systems

byby

Cristina Brasili, Roberto FanfaniCristina Brasili, Roberto Fanfani

Department of Statistics, University of Bologna, Via Belle Arti, 41, 40126 BolognaPh. ++39 051 2098260, Fax ++39 051 232153, E-mail: [email protected]

E-mail: [email protected]

The localisation and specialisation of Italian food industry

* The overall analysis of the food industry did not capture the various geographic realities

* The analysis at national and regional level are not relevant to represent the structural characteristics of food industry

* The processes of specialisation displayed substantial differences between

- provinces - sub-sectors

Conference 2001 - “Conference 2001 - “Comparing Economic InstitutionsComparing Economic Institutions””Local economic development in Italy - Siena, 8-11 November 2001

Structure and Efficiency of the Italian Agri-food Industry: an analysis of the Local SystemsStructure and Efficiency of the Italian Agri-food Industry: an analysis of the Local Systems

The Sub-Sectors of the Italian Food Industry

(Establishments and Employees)

The overall analysis of the food industry did not capture the various sub sectors characteristics

The food industry sub sectors have - different importance- different structure - different localization

The main sub sectors of the Italian food industry are- “other food industries”(49% of workers)- meat transformation (12.4% of workers)- dairy (11.8%)- fruit and vegetables (6.2%)

Conference 2001 - “Conference 2001 - “Comparing Economic InstitutionsComparing Economic Institutions””Local economic development in Italy - Siena, 8-11 November 2001


Conference 2001 - “Conference 2001 - “Comparing Economic InstitutionsComparing Economic Institutions”” Local economic development in Italy - Siena, 8-11 November 2001


The of Specialisation in the Meat Sub-Sector by provinces (1996)

In the meat sector 24 provinces were specialised in terms of employees and establishments

The provinces of Modena and Lecco displayed the highest specialisation in the meat sector, in terms of both establishments and employees (3 times the Italian average).

The provinces of Cremona and Parma were also specialised, in terms of establishments (5 times the national average).

0 1 2 3 4 5 6

Establishments 15.1

0

1

2

3

4

5

6

Employees

AG

AL

AN

AO ARAP

AT

AV

BABLBN

BG

BI

BO

BZ

BS

BR

CA

CLCBCECT

CZ

CH

CO

CS

CR

KR

CN

EN

FEFI

FG

FO

FR

GE

GO

GR

IM

IS

SP

AQLT

LE

LC

LILO

LU

MC

MN

MS

MT

ME

MI

MO

NANONU

OR

PD

PA

PR

PVPG

PS

PE

PC

PI

PT

PNPZ

PO

RG RA

RC

RE

RI

RN

RM

RO

SA

SSSV

SI

SR

SO

TA

TE

TRTO

TP

TNTV

TSUD

VAVE

VB

VCVR

VV

VI VT

Specialisation in the Meat Sub-Sector– 1996

provinces





The of Specialisation in the Fruit & Vegetables by provinces (1996)

In the fruit & vegetables sector 26 provinces were specialised in terms of employees and establishments.

The specialised provinces are mainly in Southern Italy (Salerno, Avellino, Naples and Reggio Calabria).

In the North Italy, Ravenna is in the leading position, followed by other provinces, such as Piacenza, Ferrara and Bolzano.

Specialisation in the Fruit & Vegetables Sub-Sector– 1996

provinces





The economic and financial analysis in the meat and in the fruit & vegetables sub-sectors ( balance-sheets of firms 1996-1999)

We have analysed more than 3,800 food industry firms budgets from 1996-99. (The coverage in terms of workers is about 45%)

In the meat sub sector we have considered a panel of 446 firms in 4 years (1996 to 1999).

In the fruit & vegetables sub sector we considered a panel of 227 firms in 3 years (1996 to 1998).

We have calculated some common balance sheet ratios ROI, ratio of the operating income to the invested capital ROE, ratio of the net profit to the company’s capital or equity Productivity of labour, ratio of the added value to the employees (millions) Labour cost per employee, ratio of the cost of labour to the employees (millions) Debt ratio, ratio of the total liabilities to the net worth (per 100) Innovation ratio, ratio of intangible fixed assets to total assets (per 100).



The economic and financial analysis of the meat sub-sectors

We have consider a panel of 446 firms for 4 years, with more than 24,000 workers in 1999

51% of firms were small (<20 employees) 65% of the employees worked in large firms (>100

employees).

Panel of firms in the meat sub-sector Firms* Employees 1996 1997 1998 1999 1996 1997 1998 1999

TOTAL 446 446 446 446 23,293 22,846 24,175 24,018 <20 236 231 226 233 2,384 2,393 2,330 2,145

20 - 100 167 172 173 166 6,358 6,496 6,545 6,341 >100 43 43 47 47 14,551 13,957 15,300 15,532

Source: our processing, Cerved data *balance sheets



We have consider a panel of 227 firms for 4 years, with about 13,500 workers in 1998

50% of firms were small (<20 employees)

62% of employees worked in large firms (>100 employees).

Panel of firms in the fruit-vegetable sub-sector Firms* Employees 1996 1997 1998 1996 1997 1998

TOTAL 227 227 227 11,157 13,366 13,485 <20 111 112 113 954 986 1,065

20 - 100 90 91 89 3,997 4,225 4,028 >100 26 24 25 6,206 8,155 8,392

Source: our processing, Cerved data *balance sheets

The economic and financial analysis of thefruit and vegetables sub-sectors



The analysis of food industry at provincial level infers a very high levels of specialisation.

The analysis of meat and fruit & vegetables sub sectors show a greater degree of specialization at province and local level (municipalities)

The economic and financial analysis of the balance sheets of meat processing and fruit & vegetables firms (by size classes) encourage us to conduct a more in-depth analysis of the local system.

To measure of the “District effect” in food industry we have made these steps:

We have identified the districts of meat and fruit & vegetables at municipalities level (Brasili, 1999)

We have done the economic and financial analysis of the firms belonging to the main districts, for each sub sectors

We have estimated the efficiency of firms belonging to the main districts utilising a stochastic frontier production function

The measure of the “District effect” in food industry

The Italian districts in the meat sub-sectorThe Italian districts in the meat sub-sector



The food districts in the meat sub sectorThe food districts in the meat sub sector- the “Ham” in Italy -- the “Ham” in Italy -

Prosciutto di ParmaProsciutto di Parma:: 201 producers201 producers 9 millions of pieces (9 millions of pieces ( 44% of the Italian production of hams)44% of the Italian production of hams) about 1,400 millions-euro of turnoverabout 1,400 millions-euro of turnover about 400 millions-euro of exportationsabout 400 millions-euro of exportations

Prosciutto di San DanieleProsciutto di San Daniele 27 producers27 producers 2 millions of pieces 2 millions of pieces 10% of the Italian production of hams10% of the Italian production of hams about 250 millions-euro of turnoverabout 250 millions-euro of turnover about 48 millions-euro of exportationsabout 48 millions-euro of exportations

Other meat districtsOther meat districts Non district meat firmsNon district meat firms





The financial analysis confirm the higher return ratios for the meat firms localised in the districts

Parma and Reggio Emilia and San Daniele meat processing districts generally have higher return ratios. The ROI is higher than 6% in almost all the years considered The other districts (less characterised than the first two) and the non-

district firms have a ROI values lower than 6%.

The ROE value was less clearly higher in the districts In non-district firms, it never exceeded 3%, whereas the Parma, Reggio Emilia and San Daniele districts it was

lower than 3 only in 1996 (in San Daniele). Labour productivity was

much higher in the Parma and Reggio Emilia and San Daniele district firms than in the firms localised in the other districts and for the non-district firms.

Labour costs were also a higher in district firms because of generally higher salaries (especially in particular of the Parma and Reggio Emilia district).

The the debt ratio turned out to be lower in the districts. (However, they displayed lesser recourse to external financial resources).

The measure of the “District effect” in meat industry



The measure of 'district effect' in terms of efficiency for the meat industry firms

The estimation of a stochastic frontier production function was used in conjunction with an estimation of individual fixed effects relative to meat processing firms alone, both district and non-district.

A positive 'district effect' was equivalent to a reduction of a firm's technical inefficiency. Our application covered the above analysed panel 446 firms in the years 1996, 1997, 1998 and 1999.

The specification of the stochastic frontier production function is reported in the next slide

C o e f f i c i e n t S t a n d a r de r r o r

t - s t a t i s t i c

0 4 . 5 1 0 . 0 8 5 8 . 3 9 * *

1 0 . 0 2 0 . 0 1 2 . 7 1 * *

2 0 . 6 6 0 . 0 1 4 6 . 0 3 * *

3 0 . 1 9 0 . 0 1 2 0 . 2 0 * *

0 - 1 . 2 9 0 . 3 9 - 3 . 3 0 * *

1 - 0 . 8 7 0 . 1 6 - 5 . 3 1 * *

2 - 0 . 5 2 0 . 1 8 - 2 . 8 5 * *

3 - 0 . 2 2 0 . 0 8 - 2 . 8 5 * *

4 2 . 0 4 0 . 4 0 5 . 0 8 * *

5 1 . 8 9 0 . 4 0 4 . 7 4 * *

6 - 0 . 2 6 0 . 0 6 - 4 . 3 5 * *

7 - 0 . 2 8 0 . 0 6 - 4 . 4 6 * *

8 - 0 . 2 3 0 . 0 6 - 3 . 5 9 * *

9 - 0 . 4 3 0 . 4 5 - 0 . 9 5 0 . 4 2 0 . 0 5 8 . 9 3 * *

S o u r c e : o u r p r o c e s s i n g o n C e r v e d d a t a

)()ln()ln()ln( 3210 ititititit uvKLtrendY

itiiii

iiiiit

TecInnIndCentreNWNEempl

emplu

)()()()(.)10020(

).20()distrsMeat Other ()distr. DanieleSan ()distr. RE-PR(

98765

43210

)( 22

2

vu

u

* s i g n i f i c a n t f o r t 0 , 0 5 = 1 , 6 4 5* * s i g n i f i c a n t f o r t 0 , 0 2 5 = 1 , 9 6 0

Stochastic frontier Stochastic frontier

production functionproduction function Meat processing firms





The existence of a 'district effect' in terms of efficiency:

a stochastic frontier production function

In the Parma and Reggio Emilia district the coefficient of the district variable was significant and of the expected sign (about -0.9) with respect to those not included in the meat districts;

In the San Daniele meat district, moreover, it had the expected sign but a much lower absolute value (-0.5 ) and -0.2 in the other meat districts.




The Size class and geographic location were other distinctive factors in the efficiency of meat industry firms, but in an opposite way.

Inefficiency was higher in small firms, roughly 2 times the one of larger firms.

Moreover, the fact of belonging to North West, North East and Centre geographic areas is a factor of decreased inefficiency vs. belonging to the South of Italy (more than -0.2).

The variable of technological innovation; the coefficient had the expected sign (-0.43), denoting reduction of inefficiency, but it was not significant.




Median Efficiency in the Meat Groups of Firms

0.500

0.550

0.600

0.650

0.700

0.750

0.800

0.850

0.900

0.950

1996 1997 1998 1999

Parma and R. Emilia Distr.S.Daniele DistrictOther Meat DistrictsOther meat Firms



We have considered a panel of 227 firms for fruit and vegetables from 1996 to 1998

The firms was clustered in the following groups (districts or not) Romagna district Salerno district Other fruit districts Non district firms

We have conducted the financial and the efficiency analysis on these groups

The measure of the “District effect” in fruit & vegetables industry

The Italian districts in the fruit & vegetables sub-sectorThe Italian districts in the fruit & vegetables sub-sector





The economic and financial analysis for the fruit & vegetables industry in the districts

The analysis of the balance-sheet ratios gave evidence of a “district effect” for the Romagna district

The analysis gave also evidence of a restructuring process in the fruit & vegetables sector

The ROI ratio in the Romagna distric was about 5% in 1998 and in 1997 and about

8% only in 1996. Conversely, in the Salerno district, the ROI had the same trend but

with values much lower than district and as against the other groups.

The labour productivity in Romagna displayed the highest value and lowest values were

observed in the Salerno district

The labour cost per employee was almost the same in each group.

The debt ratio had the lowest values in the Romagna district in all the years considered.

C o e f f i c i e n t S t a n d a r de r r o r

t - s t a t i s t i c

0 3 . 7 3 0 . 0 9 4 0 . 8 2 * *

1 0 . 0 1 0 . 0 2 0 . 4 4

2 0 . 5 9 0 . 0 2 4 0 . 8 2 * *

3 0 . 3 0 0 . 0 2 2 4 . 3 8 * *

0 0 . 5 7 0 . 1 8 3 . 2 2 * *

1 - 0 . 1 2 0 . 7 1 - 0 . 1 7

2 - 0 . 2 4 0 . 1 5 - 1 . 5 3

3 - 0 . 2 0 0 . 1 4 - 1 . 4 6

4 - 0 . 8 9 0 . 3 1 - 2 . 8 7 * *

5 - 0 . 2 2 0 . 1 6 - 1 . 3 5

6 - 0 . 4 0 0 . 5 0 - 8 . 1 1 * *

7 - 0 . 2 2 0 . 7 0 - 3 . 1 8 * *

8 - 0 . 7 7 0 . 3 1 - 2 . 4 8 * *

9 1 . 2 1 0 . 9 8 1 . 2 3 0 . 6 0 0 . 0 9 6 . 6 5 * *

S o u r c e : o u r c a l c u l a t i o n s o n C e r v e d d a t a

)()ln()ln()ln( 3210 ititititit uvKLtrendY

itiiii

iiiiit

TecInnIndCentreNWNEempl

emplu

)()()()(.)10020(

).20()distrs Veg.-Fr.Other ()distr. Salerno()distr. agnaomR(

98765

43210

)( 22

2

vu

u

* s i g n i f i c a n t f o r t 0 , 0 5 = 1 , 6 4 5* * s i g n i f i c a n t f o r t 0 , 0 2 5 = 1 , 9 6 0

Stochastic frontier Stochastic frontier

production functionproduction function Fruit & vegetables

processing firms





The existence of a 'district effect' in terms of efficiency for the fruit & vegetables industry:

a stochastic frontier production function

The analysis confirmed that in the fruit & vegetables sector, there was a very small district effect, smaller than in to the meat sector.

There are big differences between the two main districts In Romagna it recorded higher return ratios and a sharply higher

productivity of labour. In Salerno both the financial ratio and the technical efficiency are

lover than other distrits and other firms outside the districts

All the district variables were not significant, but all of the expected sign (in terms of inefficiency reduction).

The size of the firms showed negative coefficients but higher for the smallest firms and significant (-0.9).

The Efficiency was higher in the firms belonging to the Centre (-0.8) and to the North West (-0.4) and also significant, in the North East (-0.2) .



Median Efficiency in the fruit & Vegetables Groups of Firms

0.500

0.550

0.600

0.650

0.700

0.750

0.800

0.850

0.900

0.950

1996 1997 1998

Romagna

Salerno

Others Districts

Others F. & V. firms

Concluding remarks

•The Analysis at the provincial and local level infers very elevated levels of specialisation in the food industry.

•The specialisation process is different for each sub sector of the food industry

•There are very different economic situations, depending on the size of the firms, but size is not always a disadvantage for smaller firms. As a result, attention should be focused on localisation in the districts.

•The results from the analysis of the balance sheets of the two sub-sectors (meat processing and fruit & vegetables) per size classes are very interesting and encourage us to conduct a more in-depth analysis of the local system involved in the two sub-sectors.



Concluding remarks

•The economic and financial analysis show better results for firms inside the local system, especially for the meat industry (Parma better than S. Daniele, and other non districts firms), but also in Romagna district for fruit industry.

•The district effect is often colligated to •Better economic results (ROI, ROE)•Higher productivity of labour•Lower debt

•The estimation of the stochastic frontier production function for firms validates our previous results in favour of a “District effect”.

•The district effect is more evident in meat industry respect to fruit and vegetables.



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