Explaining differences in efficiency among dairy operations Explaining differences in efficiency among dairy operations

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Introduction
used in this study.The efficiency analysis The U.S. dairy industry has gone through production.Output was measured as total some dramatic changes during the last 5 to 10 yr.pounds of milk produced.Input cost categories Two forces are driving structural change.The included labor, capital, dairy, feed, fuel and first force relates to technologies or innovations.
utilities, veterinarian expenses, and miscella-Innovations or increases in the understanding of neous.Labor costs included hired labor and a the biological process have made specialization charge for unpaid operator labor.Capital costs more feasible.In addition to increasing produc-included interest, repairs, depreciation, and mation efficiency, specialization often has led to a chinery hired.The opportunity charges associreduction in production costs.The second force ated with owning facilities were included in relates to economies of size.Advances in tech-capital costs.Dairy expenses included marketnology ing and transportation costs.Input costs were maximum size of operation that can be managed for 50 dairy operations from 1991 to 1995 were required data on output, inputs, and costs of converted to real 1995 dollars.
Table 1 presents the mean and standard inefficiency or allocative inefficiency (resulting deviations of gross income, costs, profit, and from a failure to use inputs in a cost efficient selected farm characteristics.On average, the manner).Overall efficiency represents the minifarms lost about $139 per cow during the 5-yr mum cost of producing a given level of output period.Feed costs comprised about 50% of the using constant returns to scale technology.total cost per cow.Labor and capital costs Overall inefficiency can be due to economic accounted for 15 and 17% of total cost per cow, inefficiency or not producing at the most effirespectively.Average herd size was about 96 cient size.A series of mathematical programs cows, and the average amount of milk produced was used to measure technical, economic, and per cow was about 18,100 lb.
overall efficiencies.Regression coefficients Technical efficiency measures the extent to to compute elasticities.The elasticity measures which a farm uses the best available technolo-provided information on the sensitivity of effigies.Economic efficiency measures the extent ciency to each input cost.Efficiency estimates to which a farm minimizes cost for a given level were used as the dependent variables in the of output.A farm can be economically ineffi-regressions.Independent variables included the cient because of technical seven cost categories.
were used along with the means of the variables

Results and Discussion
operating at minimum cost, the same level of output Table 2 reports distributional information for Significant cost savings occurred up to a size of about technical, economic, and overall efficiencies.Techni-500,000 lb.The average cost curve was relatively flat cal efficiency ranged from .57to 1.About 28% of the once this output level was reached.In addition, more farms were technically efficient or were producing variation in production costs existed in operations of milk at a high level.Average technical efficiency for similar size than for efficient operations of different the sample of dairy operations was .87,indicating that sizes.Thus, dairy operators should focus on controlthe output of these farms could potentially be in-ling costs rather than changing operation size.creased by 11%, if each farm were operating on the production frontier.
Elasticities are reported in Table 3.An asterisk Economic efficiency ranged from .45 to 1 and the corresponding regression.Labor, capital, feed, and averaged .71.If all of the farms had been operating fuel and utilities were significant and related negativeon the average cost frontier, the same level of output ly to overall efficiency, indicating the importance of could have been produced with 29% less cost.Only controlling these cost items.Reducing labor and feed 6.8% of the farms had an economic efficiency index costs by 10% would increase overall efficiency by 1.1 that was greater than .90.In contrast, 45.6% of the and 2.3%, respectively.Conversely, increases in farms had a technical efficiency index that was greater veterinary expenses lead to an increase in overall than .90.Thus, producing on the cost frontier was efficiency.Possible improvements in herd health and more difficult for these farms than producing on the milk production per cow resulting from increases in production frontier.
veterinary expenses may explain this result.Overall efficiency ranged from .44 to 1 and averaged .67.If all of the farms had been could have been produced with 33% less cost.
indicates that the variable was significant (P<.05) in