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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.

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Paper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number 127079.

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Date of creation: 2005
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Handle: RePEc:ags:cudawp:127079
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  1. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  2. Tauer, Loren W. & Mishra, Ashok K., 2006. "Can the small dairy farm remain competitive in US agriculture?," Food Policy, Elsevier, vol. 31(5), pages 458-468, October.
  3. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
  4. Wang, Hung-jen & Schmidt, Peter, 2001. "One-step and two-step estimation of the effects of exogenous variables on technical efficiency levels," MPRA Paper 31075, University Library of Munich, Germany, revised Mar 2002.
  5. Wang, Hung-Jen, 2002. "Heteroscedasticity and non-monotonic efficiency effects of a stochastic frontier model," MPRA Paper 31076, University Library of Munich, Germany.
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