Efficiency measurement of New Zealand dairy farms
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Improving efficiency is important for New Zealand dairy farming to lift productivity and performance. This paper estimates technical efficiency performance of NZ dairy farms using both the stochastic frontier analysis (SFA) and data envelopment analysis (DEA), based on a sample of 315 New Zealand dairy farms in 2006-2007. The DEA model adopts two scale assumptions, which are the constant returns to scale (CRS) and variable returns to scale (VRS) respectively. The objective of this research is to analysis the efficiency performance of New Zealand dairy farms utilizing these two approaches to see whether there are any substantial differences in the resulting efficiency estimates. The average technical efficiency is found to be 96 percent in SFA, 82 percent in CRS DEA and 86 percent in VRS DEA. The scale properties are analysed under the two methods. Under the SFA approach, the NZ dairy farms indicate constant returns to scale. Under the DEA approach, the NZ dairy farms show increasing and dominantly decreasing returns to scale. The NZ dairy farming’s potential for increasing production through efficiency improvement is also discussed.