An analysis of the factors associated with technical and scale efficiency of Irish dairy farms

Abstract

The objectives of this study were to estimate the levels of technical and scale efficiency for a sample of pasture based Irish dairy producers, to identify the factors that contributed to reaching the optimum scale and to examine the relationship between technical and scale efficiency with farm size, intensification and specialisation. Efficiency scores were calculated using Data Envelopment Analysis (DEA). Technical efficiency was on average 0.757 under constant returns to scale (CRS), 0.799 under variable returns to scale (VRS) and scale efficiency was estimated at 0.951. Twelve per cent of the sample was operating at optimum scale (CRS). Fifty six percent of the sample was operating below optimum scale and 32% of the sample was operating above optimum scale. Overall optimum scale was associated with production systems operating with larger land area, with reduced proportion of rented land, increased amounts of hired labour, a higher quantity of quota and achieving a longer grazing season. It was also shown that increased farm size, intensification and dairy specialisation were associated with increases in technical and scale efficiency at farm level.