Cost Efficiency for Alberta and Ontario Dairy Farms: An Interregional Comparison

Abstract

"In this study, two non-homothetic translog stochastic meta-frontier cost functions-with and without local concavity imposed-are estimated using a nonlinear maximum likelihood estimation procedure to compare the cost efficiency of Alberta and Ontario dairy farms for the period 1984-96. The resulting cost efficiency estimates are not very sensitive to whether or not curvature is imposed. In contrast, the properties of the cost and input demand functions (e.g., elasticities) are sensitive to imposition of local concavity during estimation. The implication is that if an inappropriate model that does not satisfy the properties required by the economic theory is used, the estimated input demand functions may not be reliable. Average cost efficiency for the pooled sample, with local concavity imposed, is approximately 89%. This suggests some potential for improved performance in the sector. The results also suggest that Ontario dairy farms may be more cost efficient than Alberta dairy farms, but the statistical evidence is inconclusive." Copyright 2005 Canadian Agricultural Economics Society.

Scale Economies, Technical Efficiency, and the Sources of Total Factor Productivity Growth of Quebec Dairy Farms

“…On average, only 2.73% of the dairy farms have an EOS less than 1.00. Similar results were reported in Hailu et al () for Alberta and Ontario dairy farms over the period of 1984–96, by Moschini () for Ontario dairy farms as well as by Richards and Jeffrey () for Alberta dairy farms. Morrison‐Paul et al () also argued that scale economies are greatest for smaller U.S. farms.…”

Greenhouse Gas Emissions and Technical Efficiency in Alberta Dairy Production: What Are the Trade-Offs?

“…Many previous studies have examined the technical or economic efficiency of dairy farms, using both stochastic frontier analysis (SFA) and data envelopment analysis (DEA) frameworks (e.g., Cloutier and Rowley, 1993;Hailu, Jeffrey, and Unterschultz, 2005;Johansson, 2005;Weersink, Turvey, and Godah, 1990). When considering environmental externalities and efficiency, earlier studies have mainly focused on nitrogen surpluses (e.g., Mamardashvili, Emvalomatis, and Jan, 2016;Reinhard, Knox Lovell, and Thijssen, 1999).…”

Do Farm Support Programs Reward Production Inefficiency?

“…The violations of concavity may be explained, in part, by data measurement error and/or unmodeled effects. Evidence from the literature shows that the concavity condition required by economic theory may not be satisfied by flexible functional forms such as translog cost function (Ryan and Wales ; Hailu et al ). Hailu et al () show that the estimates of cost efficiency are not very sensitive to whether or not curvature condition is satisfied, but the elasticities are sensitive to the curvature condition.…”