Technology choice and efficiency on Australian dairy farms*

Deregulation of the Australian dairy industry, specifically the removal of price subsidies to ‘market milk’, as well as ongoing drought in many dairy regions, has placed considerable pressure on farm cash income and a search for ways in which dairy farms can be made to operate more efficiently. Using traditional farm survey data and a unique biannual data set on farm technology use, this paper estimates a stochastic production frontier and technical efficiency model for dairy farms in New South Wales and Victoria, determining the relative importance of each input in dairy production, the effects of key technology variables on farm efficiency, and overall farm profiles based on the efficiency rankings of dairy producers. 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 indicate that those in the ‘high efficiency group’ largely employ either rotary or swing-over dairy shed technology and have almost three times the proportional amount of land under irrigation.