n Studies in Economics and Econometrics - An SGM restricted cost function approach to technology and efficiency in a panel of KwaZulu-Natal dairy farms

Volume 30, Issue 3
  • ISSN : 0379-6205


The work reported here used a short-term specification of the symmetric generalised McFadden (SGM) cost function capable of incorporating quasi-fixed factors and variable returns. Temporary equilibrium and scale economies were investigated while maintaining the consistency of the estimated model with microeconomic theory and approximation properties. The methodology also makes use of a two-step procedure to estimate first the technology parameters and then time-varying efficiency at farm level. No distributional assumptions are required on efficiency as a fixed effect model was considered. A balanced panel of dairy farms in KwaZulu-Natal during the years from 1990 to 2002 was used for the analyses. The results show a rigid productive structure during the study period. In addition, milk producers in KwaZulu-Natal were found to exhibit considerable excess capacity and rather low input technical efficiency.

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