Measuring the Efficiency of Wheat Production of Western Australian Growers

Using stochastic frontier analysis, efficiency of production of wheat in WesternAustralia was studied. The production function model used was a relatively simpleinput model, consisting of wheat yield, effective rainfall, fertilizer application rates andyear of study. Inefficiency was captured in a second model that incorporated machinerycapital investment, opening equity level, and year of study. Data covered theproduction years 2004 through to 2007. The results demonstrated that inefficiency waspresent in wheat production in Western Australia and that inefficiency increased overthe period from 18% in 2004 to 29% in 2007. Higher machinery investment per hectareand opening equity levels reduced inefficiency, due to producers having sufficientcapacity, mechanical or financial, to adapt to variability within the production season.The results demonstrated the stochastic nature of efficiency and that for some firmsimproving efficiency may not be possible or feasible due to limitations within the firm.This also holds for firms that are relatively efficient in some years and that the reasonsfor the inefficiency are not necessarily production related, hence, programs targeted toimprove efficiency may not be very successful. On the other hand firms that areconsistently inefficient provide an ideal target audience for programs to improveefficiency. However, these programs must be conditioned on adequately identifying thesource(s) of inefficiency and the producer having access to resources to increaseefficiency. Similar analyses could be undertaken in different crops or differentgeographic locations, to identify if and why inefficiencies are present in otherproduction systems.