Production and Technical Efficiency on Australian Dairy Farms

The dairy industry plays an important role in both Australia and the world dairy market. Domestically, it is one of the most important agricultural industries, valued at $A3.7 billion a year. Internationally, the industry exports more than $A3 billion a year, making Australia the third largest dairy exporter in the world. Using traditional farm survey input and output data and a unique biannual data set on farm technology use, this paper estimates a stochastic production frontier and technical efficiency model for Australian dairy farms, determining the relative importance of each input in dairy production, the quantitative effects of key technology variables on farm efficiency and overall farm profiles based on the efficiency rankings of dairy producers. Estimated results show that production exhibits constant returns to scale and although feed concentration and the number of cows milked at peak season matter, the key determinants of differences in dairy farm efficiency are the type of dairy shed used and the proportion of irrigated farm area. Overall farm profiles also indicate that those in the high efficiency group employ either rotary or swingover dairy shed technology and have (by far) the largest proportion of land under irrigation.