DRIVERS OF ECONOMIC PERFORMANCE: WHAT CAN WE OBSERVE IN THE CZECH FOOD INDUSTRY?

Abstract

This paper is focused on the investigation of the competitiveness drivers, namely technical and scale efficiency and technological change, and their relation to the profitability of the Czech food processing companies in the period 2016-2019. This investigation is based on the stochastic frontier modelling of an input distance function in the specification of the four-error component model. The model is estimated with a multi-step procedure employing the generalized method of moments estimator addressing the potential endogeneity of netputs, and panel data gained from the Bisnode Albertina database. The results revealed (evaluated on the sample mean) that investigated food processing sectors were scale efficient in the analysed period, however, their production technologies exhibited prevailing technological regress. Moreover, the room for almost 17% cost reduction by the technical efficiency improvements was found out in all investigated sectors. Although inter-sectoral differences exist in the scale efficiency, technological change and technical efficiency dynamics, to increase the productivity and competitiveness of food processing companies, it is generally appropriate to focus on technical efficiency and technological change improvements. Both these competitiveness drivers connected with the cost reduction and minimizing of wastage of inputs are achievable through innovations. In general, the basic source of their financing is profit, the achievement of which is supported by cost minimization. However, it was found that sub-sectors, which are linked to sensitive sectors of agricultural production - that means sectors with the lowest national self-sufficiency, the highest level of imports and thus strong cost reduction pressure - have problem to translate the ability to produce efficiently into profitability. Although these food sectors, which have been also facing strong competition for a long time, which leads to significant pressure to reduce costs, achieved the highest technical efficiency, their profitability was lowest from the investigated sectors.