HERD SIZE AND UNIT COSTS OF PRODUCTION IN THE ENGLAND AND WALES DAIRY SECTOR

This paper examines the relationship between herd size and unit costs of production in the England and Wales dairy sector. Following the two‐stage estimation procedure of Dawson & Hubbard (1987), longrun average cost (LAC) functions are estimated from cross‐section data for five separate years between 1976/7 and 1986/7. Results show that the LAC curves are U‐shaped but highly skewed, implying that considerable economies of size are present at low output levels but diseconomies at larger levels are much less marked. Over time, technological change in particular has been shifting the LAC curves downward and to the right and away from the sector's long‐run equilibrium. The differential shift of cost curves, depending on the size of production, implies that technological change has been biased in favour of larger herds. Copyright © 1990, Wiley Blackwell. All rights reserved