PR - MEASURING HOW NZ DAIRY FARMERS REACT TO VOLATILE PRICES BY ANALYSING FARMER RESPONSES OVER A PERIOD OF TIME USING PANEL DATA

Abstract

Since 2006, milk prices, on average, have increased but there has been a great deal of price volatility in global dairy trade prices as well as New Zealand farm gate milk prices. Higher milk price can lead to higher profits if New Zealand dairy farmers respond to these price changes accordingly and adjust their input costs. The prime objective of this paper is to identify how farmers react to volatile prices during this period and this can be done by analysing farmer responses over a period of time using panel data. Farms that were both technical and scale efficient did not significantly change the three inputs (land, labour, and number of cows) but these farms slightly adjusted inputs to find the optimal point of their production. The majority of farms that were only scale efficient substantially varied these three inputs irrespective of price fluctuations and sought optimal scale rather than technical efficiency. Irrespective of price fluctuations, the inefficient farms kept increasing or decreasing inputs and ended up with low technical and scale efficiency.

Keywords: New Zealand dairy farmers, panel data, DEA, technical and scale efficiency