The Impact of Debt Structure on the Production Efficiency of Broadcare Farms in Western Australia

Farming activities are often financed using debt yet empirical studies that investigate the relationship between farm debt structure and performance are still rare. In a ten years unbalanced panel (1995-2005) of Western Australia broadacre farms, we relate the impact of long-term debt, short-term debt and tax liability on farm performance measured by input-oriented technical efficiency and return on assets (ROA). To check for the robustness of our results, both data envelopment analysis (DEA) and stochastic frontier analysis (SFA) methods are employed. Results from both models are consistent: farm production efficiency is positively related to shortterm debt, tax liability and investment and negative related to off-farm income activities. Longterm debt has no effect on production efficiency and ROA.