Performance of the Norwegian dairy farms: A dynamic stochastic approach

Abstract

From a theoretical perspective, it is well stated that the farm's decision on the use of inputs depends on the farmer's ability to make an efficient decision over time. The existing literature in performance analysis of the dairy farms based on static modeling and thus ignores the inter-temporal nature of production decisions. This paper aims to construct a dynamic stochastic production frontier incorporating the sluggish adjustment of inputs, to measure the performance of dairy farms in Norway. The empirical application focused on the farm-level analysis of the Norwegian dairy sector for 2000- 2018. The dynamic frontier estimated using the system Generalized Method of Moments estimator. The analysis shows that the static model in the previous studies underestimates the performance of the dairy farms.