PR - DAIRY FARMING SYSTEMS – WHAT DRIVES EFFICIENCY?

Abstract:

The convergence of global milk prices within the last ten years has resulted in higher average prices for NZ farmers but much greater volatility and has led to a shift away from the recognised norm, the pasture only system, resulting in a diversity of systems. There is much debate in New Zealand on which ones are the best. While arguably all systems are delivering to a low cost strategy the metrics used to compare systems is often misleading due to known differences that exist in the data and are not always focused on efficiency. The purpose of this research was to explore the relative efficiency of the various systems and to identify the metrics that best related to efficient systems. Farm data for 5 years from DairyBase® was analysed. Comparable observations were nested into a classification system designed to remove known differences, followed by the estimation of efficiency scores for each individual observation within these classes using Data Envelopment Analysis (DEA). Data envelopment analysis (DEA) is a nonparametric linear programming methodology used to evaluate the relative efficiency of businesses based on the inputs used to produce outputs. Both technical and financial efficiency were determined this way. Efficiency scores were then attached to the original dataset and used as the response variable in several Regression Partitioning Trees (RPT). This procedure identified the most relevant benchmarks and showed that there are various pathways to high efficiency and its most closely linked benchmark, Return on Assets. These results challenge the ‘recipe’ driven approach to extension commonly espoused in NZ and encourage the adoption of those metrics most associated with Return on Assets when analysing farm businesses.