Examining technical and economic efficiency: Empirical applications using panel data from Alberta dairy farmers

This study uses stochastic frontier analysis (SFA) to examine technical and economic efficiency of the Alberta dairy sector. As the North American dairy market moves toward free trade and a more competitive economic environment, the viability of the sector can be maintained if producers are highly efficient, which renders efficiency analysis crucial to production, marketing and trade. Therefore, there is need to emphasise efficiency and management practices that contribute to greater efficiency.;The data from Alberta Agriculture covering 1980--1996 and constituting 1046 observations was used to generate the variables used.;The findings are: mean technical efficiency, mean economic efficiency and mean allocative efficiency are 91 percent, 84 percent and 93 percent, respectively, with more than 50 percent of farms in the samples performing better than the average farm. Small herds tended to show higher levels of efficiency than large ones; capital intensity, higher breeding and veterinary services, and increase in the ratio of grains and concentrates to hay and forage were found to be associated with higher levels of efficiency.;The output elasticities were all positive and characterised by decreasing returns to scale, implying that Alberta dairy farmers are operating profitably; changes in the levels of technical and economic efficiency over time have not been significant, but technological change has been positive and significant. The stochastic model was found to be a correct representation of both production and cost frontiers. Lastly, different distributions of the inefficiency error term were found to be inconsistent in terms of resulting average measures and the ranking of individual technical and economic efficiency measures, indicating that the appropriate choice of the distribution is dependent on the data. Future research should utilize data from several provinces under one study to afford meaningful comparisons.;The overall objective was to determine efficiency for milk production in Alberta. Thus, dynamic stochastic production and cost frontiers were estimated and used to compute measures of technical and economic efficiency and to identify factors that have significantly influenced efficiency levels in milk production. Moreover, alternative methodological assumptions about stochastic frontiers were tested, including choice of functional form and alternative distribution assumptions for inefficiency terms.