Off‐farm work and technical efficiency on U.S. dairies

In this study, we investigate the impact of an increase in farm households' off-farm work on technical efficiency (TE) of U.S. dairies. We present a theoretical framework that implies that an increase in farm household off-farm work decreases TE. We use two nationally-representative samples of U.S. dairies (2010 and 2005 Agricultural Resource Management Surveys) and a parametric approach (stochastic frontier analysis) to empirically test the hypothesis. Results are generally consistent with the hypothesis and show that an increase in off-farm work by the farm household is associated with a significant decrease in TE. In addition, results show that there is a statistically significant difference in TE between small, medium, and large farms. Small farms are associated with significantly higher off-farm work and have lower TE than large farms, which implies that less off-farm work by households with larger farms is at least partially responsible for the evidence of economies of scale in the U.S. dairy industry.