Productivity, Efficiency and Optimisation

The terms productivity and efficiency have been used as interchangeable concepts with each other by many, but they are not exactly the same thing. Productivity is a measure of the output to input ratio. Efficiency is a measure of comparing current performance with the best practice; the best practice is determined by the avai9lable production technology.

What is optimisation? It has been suggested that most NZ farmers are efficient, so why would they need to optimise? Is optimisation a hard sell, or is the concept just hard to explain/understand/comprehend and apply?

  • Optimisation models are available for analysis of individual farm businesses.
  • Optimisation models are a key tool for the analysis of the best mix of resources arising from new emerging policies, price changes, and technologies within pastoral grazing systems.
  • Optimisation modelling is an effective way to analyse many different scenarios alerting the farmer to applicable non-intuitive but new farm strategies.
  • Optimisation modelling shows where to substitute specific resources.
  • Optimisation modelling allows the efficient identification of profitable system configurations identifying for the farmer the point where further investment in livestock, plant, labour, feeds and services stop contributing profit to his specific farm. (Application of the law of diminishing returns in real time).
  • Optimisation modelling allows the maximisation of operating surplus, to where marginal cost equals marginal revenue (MC=MR) this is the profit-maximising point. 

You can increase productivity and efficiency using optimisation modelling, but you cannot optimise using productivity or efficiency ratios, because the methods and formulas are different. However, you can measure the year to year improvements made whatever system you use. TS