Dairy farm cost efficiency

A stochastic cost equation was estimated for US dairy farms using national data from the production year 2000 to determine how farmers might reduce their cost of production. Cost of producing a unit of milk was estimated into separate frontier (efficient) and inefficiency components, with both components estimated as a function of management and causation variables. Variables were entered as impacting the frontier component as well as the efficiency component of the stochastic curve because a priori both components could be impacted. A factor that has an impact on the cost frontier was the number of hours per day the milking facility is used. Using the milking facility for more hours per day decreased frontier costs; however, inefficiency increased with increased hours of milking facility use. Thus, farmers can decrease costs with increased utilization of the milking facility, but only if they are efficient in this strategy. Parlors compared with stanchions used for milking did not decrease frontier costs, but decreased costs because of increased efficiency, as did the use of a nutritionist. Use of rotational grazing decreased frontier costs but also increased inefficiency. Older farmers were less efficient.