Project Title: Regulations and Economic Efficiency of Ontario and New York Dairy farms
Key Personnel: Peter Slades (Graduate Student) & Getu Hailu (Associate Professor)
Purpose: This project examines the effect of differences in dairy policy (institutional) environment on the cost efficiency of dairy farms. Cost of production for “panel” of the province of Ontario and the state of New York dairy farms from the production period 2000-2009 was analyzed to examine the effect of differences in regulatory structure on the performance of dairy farms.
Context/Issues: Given the academic and policy debate around the efficiency implications of the Canadian dairy supply management, comparison of Ontario and New York dairy farms will enhance our understanding.
Model/Method: Cost efficiency of individual farms is estimated using econometric and programming approaches. A cost efficient dairy farm is a farm that has the lowest cost of producing milk, livestock and crop jointly. Farms that are not cost efficient have higher costs. Once the efficiency of farms in Ontario and New York is estimated, truncated regression is used to examine if there are any differences in efficiency between the two regions.
Key findings: We found differences in the cost efficiency between dairy farms in Ontario and New York State. Dairy farms in New York state tend to be more cost efficient than those in Ontario. Further analysis of cost structure of the two regions reveals that Ontario dairy farms tend to be overcapitalized relative to the New York farms, which is consistent with previous observation by agricultural economists that Canadian farms are highly indebted. Another difference between the two regions is that the New York farms use more purchased feed.