Efficiency in milk production on Reunion Island: Dealing with land scarcity

This paper aims to analyze efficiency on dairy farms in Reunion Island, a French overseas district located in the Indian Ocean. On this island, dairy farming is promoted with financial and technical support from the European Union, with the French and local governments aiming at reducing dependency on imports of milk powder and dairy products and creating employment. A critical factor for increasing the local milk production is the limited availability of arable land because of the small size and the volcanic nature of the island. In this paper, we study the efficiency levels of dairy production on 34 farms by using a data envelopment analysis approach. The average technical efficiency score of farms, assuming constant returns to scale, was 0.927, with 19 out of 34 farms not being efficient. The technical efficiency with a variable returns to scale specification was 0.951. The efficiency with which farmers used their land (subvector efficiencies) was estimated in a second model. The average subvector efficiencies calculated with constant returns to scale and variable returns to scale models were lower than the technical efficiencies. The farmers on the efficiency frontier had a relatively higher milk production, milk production per cow, and land surface than those who were less efficient. A policy promoting better use of the land on inefficient farms should increase the milk production-to-land ratio. Possible on-farm strategies are improved feeding systems, farms having their own heifer breeding, and improved genetics.