Efficiency in New Zealand Sheep and Beef Farming: The Impacts of Regulatory Reform

Abstract

In this study, we consider the impacts of dramatic regulatory reform during the 1980s on the efficiency of farms in New Zealand, using unbalanced panel data. A translog distance function representing the multiple output and input technology and incorporating nonneutral regulatory impacts is used for the analysis. Determinants of technical inefficiency, including a regulatory variable, a time term, and a debt/equity ratio, are also incorporated in a one-step model estimated by maximum-likelihood, stochastic production frontier methods. We find evidence of regulatory-induced changes in output composition—toward beef and deer, and away from wool, and especially lamb—but little associated technical inefficiency. These patterns motivated investment in complementary capital, land, and beef/deer livestock inputs. Firms that were more flexible in their adaptation toward these new mixes adjusted to regulatory changes with less upheaval, so any existing inefficiency appears linked to debt/equity levels.