The production performance of wheatbelt farms in Western Australia is analysed to determine whether potential to exploit scale economies and improve technical efficiency has driven the trend towards increased farm size. An input-orientated stochastic frontier model is used to estimate technical efficiency and scale economies using an unbalanced panel dataset provided by BankWest for the period 1995/1996 to 2005/2006. Differences in the relative efficiency of farms are explored by the simultaneous estimation of a model of inefficiency effects. The results show the majority of wheatbelt farms operate at high levels of technical efficiency and experience increasing returns to scale. Over the study period farms became bigger to benefit from economies of scale, however average farm technical efficiency declined. More specialised farms on average are more technically efficient and have less potential to exploit scale economies. Technical efficiency and scale economies are significantly affected by farm location. The farmer/farm family characteristics do not significantly affect technical efficiency although attending an agricultural college and having a child with a strong interest to return to the farm has a positive effect on scale economies.


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