Masters Theses

Date of Award

6-1978

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

Luther H. Keller

Committee Members

Billy J. Trevena, Robert M. Ray

Abstract

This study was a production function analysis of Grade A dairy farms in Middle and East Tennessee. Records from a select group of Tennessee dairy farms enrolled in the Agricultural Resource Development Program were used for the study. Data were for 1973, 1974, and 1975 and were derived from 241 farm records. At least 50 percent of the gross farm income on each study farm came from the dairy enterprise. The principal objective was to estimate marginal productivities of resources used on farms in the study. Other objectives were to estimate the returns to scale on Tennessee Grade A dairy farms, to determine the substitution relationship between mechanization and hired labor on Tennessee Grade A dairy farms, to develop a management index for individual milk producers and to compare it with efficiency factors commonly derived from farm record analysis, and to use production function estimates for prediction and to compare predicted output with actual output. In order to obtain estimates of marginal productivities, production functions were estimated by the least squares technique using the Cobb-Douglas function in logarithmic form. Separate functions were estimated for 1973, 1974, 1975, and 1973-1975 combined. Input categories related to annual gross farm income were investment in dairy cows, investment in buildings and improvements, man equivalents of hired labor per year, man equivalents of unpaid labor available per year, annual machinery and equipment expenses, yearly cash operating expenses, and open acres of land. Marginal value productivity estimates were derived at the geometric and arithmetic means of each independent variable for each of the time periods. For the year 1973, the input man equivalents of unpaid labor was the only input with a negative marginal value product. In 1974, the marginal value productivities of investment in buildings and improvements and man equivalents of unpaid labor were negative. In 1975 and the 1973-75 period, the marginal value productivities of all inputs were positive. For the average farm in 1973-75, this study indicated that reductions in capital used for buildings and improvements, operating capital, and hired labor combined with increases in investment in dairy cows and machinery and equipment expenses would have increased profitability. Increasing returns to scale on Grade A dairy farms were exhibited for the 1973-1975 period. This indicated a declining cost per unit of output as all inputs are increased in the same proportion. Mechanization had a diminishing marginal rate of substitution for hired labor. This analysis indicated that the average farm could have profitably reduced the amount of labor hired and increased machinery and equipment expenses without reducing gross farm income. The development of a management index from the residuals of the Cobb-Douglas production function estimates indicated that the quality of management on a particular farm is difficult to determine from observable characteristics. Although the management index was found to be correlated with certain efficiency factors, especially those concerning milk production, no single factor was found that could be used as an accurate indicator of managerial ability. The production function estimated for 1973-1975 was used in conjunction with input data from 82 dairy farm records for 1976 in order to predict 1976 gross farm income. The input output relationship expressed by the production function developed for 1973-1975 data was not found to be significantly different from the input output relationship evidenced by the 1976 data. As a result it was concluded that the general guidelines developed throughout this study would have been appropriate for the 1976 period also.

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