Journal of Productivity Analysis

, Volume 45, Issue 1, pp 103–115 | Cite as

Efficiency and regulation: a comparison of dairy farms in Ontario and New York State

  • Peter SladeEmail author
  • Getu Hailu


We study the cost efficiency of dairy farms operating under two different regulatory regimes. While neo-classical economic theory suggests that farms should maximize their efficiency regardless of their regulatory system, we find that farms operating in a more regulated environment have, on average, a lower cost efficiency. Differences in cost efficiency are primarily explained by allocative decisions—farms in the more regulated environment are overcapitalized and overly reliant on homegrown feed. Efficiency is estimated using bootstrapped data envelopment analysis and a stochastic distance function. We discuss the implications of these results for welfare and policy.


Regulation Efficiency Agricultural policy Data envelopment analysis Bootstrap Distance function 

JEL Classification

L51 D21 Q18 



This work was supported by the Ontario Ministry of Agriculture, Food and Rural Affairs [grant number 200222] and the Canadian Dairy Commission.


  1. Alchian A (1950) Uncertainty, evolution and economic theory. J Polit Econ 58:211–221CrossRefGoogle Scholar
  2. Baily MN (1993) Competition, regulation and efficiency in service industries. Brook Pap Econ Act Microecon 2:71–159CrossRefGoogle Scholar
  3. Balagtas J (2007) U.S. dairy policy: analysis and options. In: Gardner B, Sumner D (eds) Agricultural policy for the 2007 farm bill and beyond. American Enterprise Institute, WashingtonGoogle Scholar
  4. Balagtas J, Sumner D (2011) Evaluation of U.S. policies and the supply management proposals for managing milk margin variability. Am J Agric Econ 94:522–527CrossRefGoogle Scholar
  5. Barichello R (1999) The Canadian dairy industry: prospects for future trade. Can J Agric Econ 47:45–55CrossRefGoogle Scholar
  6. Battese G, Coelli T (1988) Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data. J Econ 38:387–399CrossRefGoogle Scholar
  7. Bravo-Ureta B, Rieger L (1990) Alternative production frontier methodologies and dairy farm efficiency. J Agric Econ 41:215–226CrossRefGoogle Scholar
  8. Cochrane W (1958) Farm prices: myth and reality. University of Minnesota Press, MinneapolisGoogle Scholar
  9. Coelli T, Perelman S (1999) A comparison of parametric and non-parametric distance functions with application to European railways. Eur J Oper Res 117:326–339CrossRefGoogle Scholar
  10. Coelli T, Singh S, Fleming E (2003) An input distance function approach to the measurement of technical and allocative efficiency: with application to Indian dairy processing plants. Unpublished manuscript, University of Queensland, Brisbane, AUGoogle Scholar
  11. Das S, Krishna K, Lychagin S, Somanathan R (2013) Back on the rails: competition and productivity in state-owned industry. Am Econ J Appl Econ 5:136–162CrossRefGoogle Scholar
  12. Department of Agriculture and Markets, New York State (2010) Annual Statistical Bulletin 2009. Accessed 20 Jan 2011
  13. Foltz JD, Chang HH (2002) The adoption and profitability of rBst on Connecticut dairy farms. Am J Agric Econ 84:1021–1032CrossRefGoogle Scholar
  14. Goldfarb D (2009) Making milk: the practices, playes and pressures behind dairy supply management. Conference Board of Canada, OttawaGoogle Scholar
  15. Haghiri M, Nolan J, Tran K (2004) Assessing the impact of economic liberalization across countries: a comparison of dairy industry efficiency in Canada and the USA. Appl Econ 36:1233–1243CrossRefGoogle Scholar
  16. Hailu G, Jeffrey S, Unterschultz J (2005) Cost efficiency for Alberta and Ontario dairy farms: an interregional comparison. Can J Agric Econ 53:141–160CrossRefGoogle Scholar
  17. Hayek FA (1945) The use of knowledge in society. Am Econ Rev 35:519–530Google Scholar
  18. Jesse E, Crop B (2001) Federal milk marketing reform (continued), paper 73, University of Wisconsin-Madison, Madison, WI Google Scholar
  19. Kneip A, Simar L, Wilson PW (2008) Asymptotics and consistent bootstraps for DEA estimators in nonparametric frontier models. Econ Theory 24:1663–1667CrossRefGoogle Scholar
  20. Kumbhakar S, Ghosh S, McGuckin JT (1991) A generalized production frontier approach for estimating determinants of inefficiency in U.S. dairy farms. J Bus Econ Stat 9:279–286Google Scholar
  21. Lang B (2010) Dairy farm wage rates. Accessed 15 Jan 2011
  22. MacDonald JM, O’Donoghue EJ, McBride WD, Nehrig RF, Sandretto CL, Mosheim R (2007) Profits, costs, and the changing structure of dairy farming, research report 47, United States Department of Agriculture, Washington, DCGoogle Scholar
  23. Mbaga M, Romain R, Larue B, Lebel L (2003) Assessing the technical efficiency of Quebec dairy farms. Can J Agric Econ 51:121–137CrossRefGoogle Scholar
  24. Moschini G (1984) Quota values and price uncertainty. Can J Agric Econ 32:231–234CrossRefGoogle Scholar
  25. Mosheim R, Lovell CK (2009) Scale economies and inefficiency of US dairy farms. Am J Agric Econ 91:777–794CrossRefGoogle Scholar
  26. Nicholson CF, Knoblauch WA (1993) A comparison of New York and Ontario dairy farms. J Dairy Sci 76:2050–2055CrossRefGoogle Scholar
  27. Politis DN, Romano JP, Wolf M (2001) On the asymptotic theory of subsampling. Stat Sin 11:1105–1124Google Scholar
  28. Schmitz A, Schmitz T (1994) Supply management: the past and the future. Can J Agric Econ 42:125–148CrossRefGoogle Scholar
  29. Schmitz JA Jr (2005) What determines productivity? Lessons from the dramatic recovery of the U.S. and Canadian iron ore industries following their early 1980s crisis. J Polit Econ 113:582–625CrossRefGoogle Scholar
  30. Simar L, Wilson P (2007) Estimation and inference in two-stage, semi-parametric models of productive efficiency. J Econ 136:31–64CrossRefGoogle Scholar
  31. Simar L, Wilson P (2011) Inference by the m out of n bootstrap in nonparametric frontier models. J Prod Anal 36:33–53CrossRefGoogle Scholar
  32. Simar L, Zelenyuk V (2007) Statistical inference for aggregates of Farrell-type efficiencies. J Appl Econ 22:1367–1394CrossRefGoogle Scholar
  33. Stefanides Z, Tauer LW (1999) The empirical impact of bovine somatotropin on a group of New York dairy farms. Am J Agric Econ 81:95–102CrossRefGoogle Scholar
  34. Tauer L (1993) Short-run and long-run efficiencies of New York dairy farms. Agric Res Econ Rev 22:1–9Google Scholar
  35. Tauer L, Lordkipanidze N (2000) Farmer efficiency and technology use with age. Agric Res Econ Rev 29:24–31Google Scholar
  36. United States Department of Agriculture (2008) Milk income loss contract program farm bill 2008 information sheet. Accessed 11 Jan 2011
  37. Weersink A, Turvey C, Godah A (1990) Decomposition measures of technical efficiency for Ontario dairy farms. Can J Agric Econ 38:439–456CrossRefGoogle Scholar
  38. Wilson P (1995) Detecting influential observations in data envelopment analysis. J Prod Anal 6:27–45CrossRefGoogle Scholar
  39. Winter S (1971) Satisficing, selection and the innovating remnant. Q J Econ 85:237–261CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.University of SaskatchewanSaskatoonCanada
  2. 2.University of GuelphGuelphCanada

Personalised recommendations