Higher intensity, higher profit? Empirical evidence from dairy farming in New Zealand

Abstract

Over the last two decades there have been significant and well-documented changes in the nature and structure of New Zealand dairy production. One particular feature has been a marked shift in the ‘input intensity’ of dairy farming systems through increased use of supplementary feed. These changes have generated debate about the impact of dairy farm intensity on the performance of farm businesses and the competitiveness of the New Zealand dairy sector. Using a novel econometric approach, we assess statistically the impact of three types of dairy farming systems on milk production and financial performance, using farm business data provided by DairyBase®. Our empirical results show that higher input systems perform significantly better physically than lower input systems, but not financially. The disaggregated analysis suggests that the average treatment effects differ by region and performance quantiles.