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An econometric approach to estimating the unit cost of procducing milk in the South African dairy industry

dc.contributor.advisorMkhabela, T. S.en_ZA
dc.contributor.authorMndeme, Shafii Husseinen_ZA
dc.contributor.otherUniversity of Stellenbosch. Faculty of Science. Dept. of Agricultural Economics.
dc.date.accessioned2009-11-12T12:36:50Zen_ZA
dc.date.accessioned2010-06-01T08:43:47Z
dc.date.available2009-11-12T12:36:50Zen_ZA
dc.date.available2010-06-01T08:43:47Z
dc.date.issued2009-12en_ZA
dc.identifier.urihttp://hdl.handle.net/10019.1/2227
dc.descriptionMScAgricen_ZA
dc.description.abstractABSTRACT: Small dairy farms in South Africa are observed to have higher costs than larger farms, and whether those higher costs are due to technology or inefficiency has implications for policy. This research focused on finding the curve that best represents the relationship between average cost and level of output. That was done by relating average cost to actual output. However, it was found to be more appropriate to relate average cost to planned output on the basis that costs are more likely to reflect what the farmer expects output to be. As a result, a pragmatic two-step procedure was adopted. In the first step, the farmer’s planned output was determined by estimating a production function based on the farmer’s actual use of inputs, i.e., land, number of cows in the herd, labour, feed and veterinary costs. In the second step, the long-run average cost (LAC) curve was estimated where average cost is calculated as total cost divided by planned output and this is then related to the level of planned output. To identify the determinants of production cost thus the drivers of higher costs on small farms, the cost of milk production by farm size was decomposed into frontier and efficiency components with a stochastic cost curve and long run cost curve using data from dairy farms in KwaZulu-Natal (South Africa). Financial data of 37 farms for the period 1999 to 2007 were used in econometrics estimation of long run average cost curve (LAC) function for different level of production (as a proxy of planned output). Results show that average cost curves exhibiting variation in unit cost with output thus suggesting the existence of economies of size with larger farms being able to produce any given level of output at lower costs compared to their smaller counterparts. The study found that long-run average cost curve (LAC) for the sample of dairy farms is L-shaped rather than U-shaped.en_ZA
dc.language.isoenen_ZA
dc.publisherStellenbosch : University of Stellenbosch
dc.subjectEconometric approachen_ZA
dc.subjectUnit costen_ZA
dc.subjectMilk trade -- South Africa -- Costsen_ZA
dc.subjectDairy industryen_ZA
dc.subjectDairying -- Economic aspects -- South Africaen
dc.subjectDissertations -- Agricultural economicsen
dc.subjectTheses -- Agricultural economicsen
dc.titleAn econometric approach to estimating the unit cost of procducing milk in the South African dairy industryen_ZA
dc.typeThesisen_ZA
dc.rights.holderUniversity of Stellenbosch


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