A growth accounting analysis of cost efficiency in milk production for six Northern States in the United States

Abstract

This paper reports on the use of a growth accounting approach to calculate and decompose cost efficiency indices into technical change, regional competitive advantage stemming from spatial effects, and economies of size. Dairy farm data for Connecticut, Maine, Vermont, Michigan, New York and Pennsylvania for the years 1968, 1970, 1977, 1980 and 1988 are utilized in the analysis. The results show that technological change yielded a 1.8% average annual rate of cost reduction over the period studied. In addition, medium and large farms were, on average, 12% to 20% more efficient than small farms. Pennsylvania had a distinct competitive advantage (13.8%), while Maine exhibited a clear competitive disadvantage (-18.2%) in producing milk relative to New York.