Small U.S. dairy farms: can they compete?

Abstract The U.S. dairy industry is undergoing rapid structural change, evolving from a structure including many small farmers in the Upper Midwest and Northeast to one that includes very large farms in new production regions. Small farms are struggling to retain competitiveness via improved management and low‐input systems. Using data from USDA's Agricultural Resource Management Survey, we determine the extent of U.S. conventional and pasture‐based milk production during 2003–2007, and estimate net returns, scale efficiency, and technical efficiency associated with the systems across different operation sizes. We compare the financial performance of small conventional and pasture‐based producers with one another and with large‐scale producers. A stochastic production frontier is used to analyze performance over the period for conventional and pasture technologies identified using a binomial logit model. Large conventional farms generally outperformed smaller farms using most economic measures—technical efficiency, various profitability measures, and returns to scale.