International Journal of Business and Economics Volume 1, No. 2 August, 2002

Post-Reform Substitution and Cost Efficiency in the New Zealand Agricultural Sector

Catherine J. Morrison Paul

Department of Agricultural and Resource Economics, University of California, U.S.A.

Warren E. Johnston

Department of Agricultural and Resource Economics, University of California, U.S.A.

Gerald A. G. Frengley

Department of Farm Management, Lincoln University, New Zealand

Abstract

A recent study suggested that output composition rather than technical efficiency changes were the primary result of dramatic regulatory reforms imposed on the New Zealand sheep and beef farming sector in the 1980s. These results raise important questions about the substitutability and cost efficiency patterns underlying these changes. Although standard measures of returns and biases do not reflect these production characteristics, indicators can be developed, based on marginal rates of transformation and technical substitution, to facilitate such an analysis. We compute such measures and find that output substitutability, even given the product jointness inherent in pastoral production, supported cost efficient output compositional changes in response to reform. However, limited substitutability and rigidities for inputs restricted input responses and imposed significant costs on farmers in their attempts to adapt to the post-reform economic incentives.

Keywords： cost efficiency, allocative efficiency, agriculture, regulatory reform.

JEL Classifications：O0, Q1.

BACK