Unpacking Total Factor Productivity on Dairy Farms Using Empirical Evidence

This study examines the farm-level factors that influence differences in total factor productivity (TFP) on dairy farms. To this end, a fixed-effects regression approach is applied to panel data for dairy farms obtained from the Farm Accountancy Data Network for Northern Ireland over the period of 2005 to 2016. The findings are largely consistent with existing empirical evidence, showing that herd size, milk yield, stocking density, and share of hired labour have a positive and statistically significant impact on TFP, while labour input per cow, purchased feed input per cow, and share of direct payments in total farm output have a negative and statistically significant impact. The more complex relationships, namely age, education, and investment, have been unpacked using interaction terms and nonlinear approximation. The impact of age is negative, and the drag on productivity grows as age increases. Capital investment and education both have a positive impact on farm-level TFP, as well as on their interaction. Policy recommendations on strategies and best practices to help dairy farms tackle productivity constraints are suggested.