U.S. Dairy Farm Cost Efficiency
Tauer, Loren W.; Mishra, Ashok K.
A stochastic cost efficiency equation was estimated for the U.S. dairy industry using national data from the production year 2000. The cost of producing a unit of milk was estimated into separate frontier and efficiency components, with both components estimated as a function of causation variables. Variables that might influence the cost of production and cost efficiency of an individual dairy farm were entered as impacting the frontier component as well as the efficiency component of the stochastic curve since a prior both components could be impacted. The factor that has the greatest impact on the cost curve frontier is the number of hours a day the milking facility is used. Using the milking facility more hours per day decreased frontier costs. However, inefficiency increased with increased hours of milking facility use, such that there was no net reduction in costs. Thus farmers can decrease costs with increased utilization of the milking facility, but only if they are efficient in this strategy. Age increased cost of production since older farmers were less efficient. Parlors used for milking as compared to stanchion milking did not decrease frontier costs, but did decrease costs because of increased efficiency, as did the use of a feed nutritionist. Use of rotational grazing decreased frontier costs but also increased fixed cost inefficiency, with a net reduction in cost of production per cwt. of milk sold.
WP 2005-12 June 2005
Charles H. Dyson School of Applied Economics and Management, Cornell University