Estimating the Technical Optimal Scale of Production in Danish Agriculture

This paper uses representative farm account data for 1985-2007 to estimate stochastic production frontiers in the form of input distance functions for Danish crop, dairy and pig farms. The objective is to study and compare scale economies for the three farm types. The estimated technical efficiency is relatively constant over time for all three farm types, but the elasticity of scale differs. Although the size of all farm types has increased considerably during the last 20 years, more than 95 % of the crop farms and 85 % of the dairy and pig farms are still below the estimated technical optimal scale of production. The results support the hypothesis that the restrictions concerning the amalgamation of farms and the purchase of farm land have seriously prevented Danish farmers, and especially cash crop farmers, from taking full advantage of scale economies.