The effects of genetic level and output quality characteristics on technical efficiency (TE) of dairy farms were studied. The average total relative breeding value (RBV) at herd level was considered a parameter of the genetic level and production potential of the main input (dairy cows), while somatic cell count (SCC) and milk composition characterise the quality of the main output (milk) of dairy farms. The analysis was carried out in two stages: data envelopment analysis was used in the first stage and fractional regression model in the second stage, combining the data collected by the Estonian Farm Accountancy Data Network with the data from the Estonian Livestock Performance Recording Ltd. The results showed that the TE of fully efficient dairy farms is positively affected by the total RBV (P < 0.05), number of dairy cows in the herd (P < 0.05), and negatively affected by the SCC (P < 0.001) and costs of purchased feed per kg of produced milk (P < 0.01). Among the inefficient farms, the TE was positively affected by the lifetime daily milk yield (P < 0.05), and average milk fat (P < 0.1) and protein (P < 0.05) contents. The results confirm our hypothesis that the genetic level of dairy herd and milk quality have a positive effect on the TE of dairy farms.
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