Vertical Economies of Scope in Dairy Farming

Journal of Agricultural & Food Industrial Organization 01/2009; 7(1):8-8. DOI: 10.2202/1542-0485.1281
Source: RePEc

ABSTRACT With the exception of Azzam and Skinner (2007), the economic literature on farm structure has largely neglected issues of vertical organization of the farm. In this article we estimate a multi-stage, multi-output cost function in order to measure vertical economies of scope in organic and conventional dairy farms. In particular, we model the integration of production of grains and forages on dairy farms. We find negligible vertical economies of scope for conventional dairy farms but significant vertical economies of scope in organic dairy production. The large vertical economies of scope for organic dairy farms are consistent with higher costs of obtaining organic feed through market transactions associated with an underdeveloped market for organic feeds.

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