Farm technical efficiency under a tradable milk quota system

Abstract

This paper incorporates the milk quota system into technical efficiency analysis of dairy farms in England and Wales. Our approach accounts for milk quota trade, allowing an investigation of the relationship between the way in which milk quota market is used by farmers and technical efficiency. In addition, several explanatory variables for inefficiency were used. Results obtained from a Bayesian stochastic frontier analysis show that the way in which farmers use the milk quota market is linked to farm efficiency. Other aspects such as environmental payments received by the farmer are linked to inefficiency. © 2012 American Dairy Science Association.