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

Muhammad Imran Siddique1, Peter Tozer1, Nicola Shadbolt1

1Massey University, Palmerston North, New Zealand

 

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


BIOGRAPHY

Massey University Professor, delivering farm and agribusiness management research and education, particular interest in farm business strategy and business analysis and cooperatives; Elected director of Fonterra Cooperative and represents NZ in the International Farm Comparison Network (IFCN) in Dairying. Nicola is a Fellow of the New Zealand Institute of Primary Industry Management and the Australian Institute of Company Directors. Shareholder/ Director/Manager of farming and forestry ventures, a mix of share and cash leasing arrangements within 5 equity partnerships – including 1000 dairy cows plus sheep, beef, deer & forestry. She has just been made an Officer of the New Zealand Order of Merit.