Rainfall and Farm Efficiency Measurement for Broadacre Agriculture in South-Western Australia

Few studies of farm technical efficiency consider differences in the physical environments of the farms. This study examines rain-fed broadacre agriculture and shows how neglect of rainfall differences between farms affects measures of farm technical efficiency (TE). Applying data envelopment analysis (DEA) to a sample of broadacre farms, TE measures unconfounded by rainfall variation are generated by specifying rainfall as a non-discretionary production input in an input-orientated DEA model. These unconfounded TE measures are compared to other TE measures generated by a conventional DEA model that does not explicitly include rainfall. The conventional DEA model reports lower levels of technical efficiency suggesting that measurement of TE should, where possible, include environmental effects, such as rainfall. Care is needed in using TE findings for farm management purposes.