Identifying efficiency trends for Queensland broad-acre beef enterprises

Productivity and efficiency improvements in agriculture have recently been targeted as Federal Government priorities in Australia. This research examined a dataset of 116 broad-acre beef enterprises from Queensland who participated in a program, Profit Probe, developed to improve management and profitability of enterprises. The aim of this research was to identify the sources, if any, of productivity growth for this sample of enterprises. Two potential sources of productivity growth were identified: 1. Technological progress involving a contraction (expansion) of the cost (output) frontier, and; 2. Efficiency improvements involving a convergence of the average production function toward the frontier. Given these two potential sources of productivity growth, the Stochastic Frontier Analysis approach was ideally suited to discern and measure technological change and efficiency change. Changes over time were observable due to the unbalanced panel nature of the data with 116 enterprises observed over a range of years from 1999 to 2008. A Cobb-Douglas functional form for the cost function was estimated following testing of the Translog form which showed higher order terms were not significant. An input oriented minimum cost frontier was chosen over the output oriented production frontier approach due to the consideration that output decisions were largely exogenous whilst input decisions were endogenous. Deterministic predictors of inefficiency were included using the panel inefficiency effects frontier of Battese and Coelli. There was no evidence of technological progress in the ten years from 1999 to 2008 for this sample of enterprises. There was however evidence of efficiency improvements despite preexisting high efficiency levels. In particular there was evidence that the Profit Probe program significantly contributed to efficiency improvements for participating firms with improvements continuing with repeated participation in the program. Additionally cost efficiency was shown to be an important component of profit maximisation but most likely was not a sufficient condition with output prices, as a quality and market indicator, being highly significantly related to profit levels