Technical efficiency measures for small dairy farms in Southern Chile: A stochastic frontier analysis with unbalanced panel data

Abstract

This paper uses a stochastic production frontier model to measure technical efficiency and technological change for a sample of small dairy farms in Southern Chile. The data is a highly unbalanced panel including 48 farmers with a total of 92 observations covering the period from 1996/97 to 2001/02. All farmers in the sample are members of the Paillaco Farm Management Center (FMC). In the preferred model, the inefficiency term has a half-normal distribution, there is no agro-climatic effect and the presence of technical inefficiency is highly significant and time variant. Average technical efficiency ranges from 77% (1996/97) to 69% (2000/01) and technological change is significant and increases at an average annual rate of 8.6% for the period (1996/2002). On average, the farmers in the sample from Paillaco (Southern Chile) are operating at a sub optimal size given that the computed returns to size parameter is equal to 1.12.