This paper deals with the estimation of a random coefficient model. The virtue of this approach is that it considers firm heterogeneity, which conventional SFA models do not. When the model is applied to Polish farms, the results indicate that the conventional random and fixed effect models overestimate the potential production increases due to the reduction of inefficiency. Additionally, our findings provide evidence of the importance of input quality for efficiency analysis. Moreover, the results indicate that farm heterogeneity is a significant determinant of agricultural production. We found that differences in productivity between the farms can partly be attributed to farm size, degree of integration in the product markets and incurred transaction costs.