Smallholders are not the same: under the hood of Kosovo Agriculture

Economists and policy makers are interested in producers’ responses to policies in order to achieve some national or sectoral objectives, e.g., growth, employment, food security. The way producers respond to policy depends on their production function. If producers do not have homogenous production function, policy responses will be heterogeneous. We use the underlying functional relationship to derive homogenous groupings. The paper employs finite regression mixture models to specify and estimate farm groups with regard to pre-specified functional relationship. The proposed approach is illustrated with regard to the aggregate production function of Kosovo agriculture, characterised by high prevalence of small farmers. The results point out to two farm clusters. The first one extracts more output from labour and intermediate consumption. The second one makes a better use of land. Perhaps, surprisingly, both clusters appear quite similar in terms of their stock of production inputs. Cluster 1 however appears to be more specialised. We can conclude that in Kosovo agriculture appearances and size are not primary determinants of productivity.