The Canadian supply managed dairy sector is likely to face more competitive pressure from challenges through the World Trade Organization (WTO) and the changing global trade environment. Therefore, it is highly prudent for Canadian dairy producers to focus their concern on their level of competitiveness and how to improve it. This study investigated the competitiveness of Ontario dairy sector based on a sample of farm level data with a Box-Cox transformed econometric cost model. The data were gathered by the Ontario Dairy Farm Accounting Project, for the years 2005, 2006, and 2007. The impacts of output, yield per cow and several farm-specific characteristics on the average cost of milk production were examined. Results support the presence of significant size economies and yield economies within Ontario milk production. Minimum costs were achieved for farms with approximately 125 cows. The results also indicated that some farm-specific characteristics, breed and region, also had significant impacts on the cost of Ontario milk production. However, it appears that Ontario farms may find it difficult to survive if they are forced to face international competition. Even at their minimum, average costs were above an indicator international dairy price.

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