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Abstract
Historically NZ dairy farming has held a position as the lowest cost, non-subsidized producers at
the farm gate. Recently, this position has been eroded as a result of increases in labor and land
costs, while other emerging countries, such as Argentina and Ukraine, have adopted lower cost
production systems. This indicates a need to continually build competitiveness on efficient
utilization of resources, both physical and financial.
Prior research on the efficiency performance of dairy farming in NZ is scant and the focus to
date has been on technical efficiency, which alone only reveals how well farms utilize the
physical production process. This paper contributes to the empirical literature by examining the
cost efficiency of NZ dairy farms using established methods. Simplified translog stochastic cost
frontiers are constructed based on an unbalanced panel of 824 farms. Average cost efficiency is
estimated to be around 83% for dairy farms located in the North Island and 80% for the South
Island. Analysis of the relationship between inefficiency and farm characteristics suggests
significant associations exist between capital intensity, livestock quality, farm size and cost
efficiency.