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Cost Structure of the Ontario Dairy Industry Revisited: Distributional Aspects

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  • Rajsic, Predrag

Abstract

The initially stated objective of the Canadian dairy supply management–farm revenue risk reduction–has been met well by the program. However, it is less clear whether the program has served all farms equally well. Namely, it is not known how successful the program was in enhancing the cost-effectiveness of smaller farms. This paper uses the 2006 Ontario dairy farm-level accounting data to compare the estimated cost structure with that identified by Moschini (1988). Next, farm size and profit distribution changes are assessed. Finally, the paper provides a simple framework for examining the relationship between current farm size and quota purchases by individual farms. The results suggest that the general cost pattern identified in the early 1980s has been retained. Average cost declines as output increases at lower output levels. However, the minimum-cost farm size has increased about threefold. Additionally, both output and profit distributions have become more skewed, with a lesser contribution by smaller farms. There is evidence that the possibility of quota exchange facilitated the greater expansion of larger farms and that the process of divergence in size and profit between small and large farms is continuing. These results have bearing on the sustainability of smaller farms.

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Bibliographic Info

Paper provided by Canadian Agricultural Trade Policy Research Network in its series Working Papers with number 157407.

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Date of creation: Aug 2013
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Handle: RePEc:ags:catpwp:157407

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Related research

Keywords: supply management; cost structure; quota purchases; Agribusiness; Agricultural and Food Policy; Production Economics;

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  1. Almuhanad Melhim & Erik J. O'Donoghue & C. Richard Shumway, 2008. "Do the Largest Firms Grow and Diversify the Fastest? The Case of U.S. Dairies," Working Papers, School of Economic Sciences, Washington State University 2008-7, School of Economic Sciences, Washington State University.
  2. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
  3. Elskamp, Rebecca & Hailu, Getu, 2013. "Do Efficient Dairy Producers Purchase Quota?," Working Papers, Canadian Agricultural Trade Policy Research Network 148901, Canadian Agricultural Trade Policy Research Network.
  4. W. Erwin Diewert & T.J. Wales, 1989. "Flexible Functional Forms and Global Curvature Conditions," NBER Technical Working Papers 0040, National Bureau of Economic Research, Inc.
  5. Ryan, David L. & Wales, Terence J., 2000. "Imposing local concavity in the translog and generalized Leontief cost functions," Economics Letters, Elsevier, vol. 67(3), pages 253-260, June.
  6. Moro, Daniele & Nardella, Michele & Sckokai, Paolo, 2005. "Regional Distribution of Short-Run, Medium-Run and Long-Run Quota Rents Across EU-15 Milk Producers," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark, European Association of Agricultural Economists 24615, European Association of Agricultural Economists.
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