Efficiency and Competitiveness of the Small New York Dairy Farm

Abstract

Many believe that small dairy farms cannot survive because costs of production per cwt of milk are thought to be higher than the cost of production per cwt of milk on larger farms. Raw summaries of dairy farm business records in New York are consistent in that smaller dairy farms do have higher average costs of production. However, 1999 data from a group of 314 New York dairy farms were used to model costs of production as frontier or best practice costs with a separate efficiency component accounting for use of projected best practices. That modeling procedure showed that most of the empirical high cost observed on many small dairy farms is due to inefficiency. Therefore, efficient small dairy farms can be competitive with larger dairy farms in New York in producing milk at comparable costs per unit. The frontier cost of production for a 50-cow farm was $13.61 per hundred pounds (45.5kg) or $0.299 per kg, only slightly over 4% more than costs for a 500-cow farm ($13.03 per hundred pounds or $0.287 per kg). The implication is that the efficient small dairy farm can compete with the efficient large dairy farm.