Evaluating Break Point of Paddy Farms through Cost Function Approach

Present study used Translog cost function for determining break point of paddy farms. Requested data set include inputs’ prices and quantities, and production amounts had been acquired from 500 rice farmers of Guilan province at 2009. Model used in this study is seemingly unrelated regressions (SUR). The results showed that labor and pesticides had the highest and lowest share of production costs, respectively. Accordingly, increasing labor wages puts the greatest effect on rice prices. Estimated returns to scale measure (ES) showed that there are increasing returns to scale in investigated paddy farms. Accordingly, splitting paddy farm will increase the cost of rice production and by increasing price of rice competitiveness of farmers reduced in compare with foreign competitors. Present study showed that the break point of paddy farms was one hectare so farms less than one hectare will increase average production costs, significantly. A policy recommendation is that paddy farms less than one hectare should be integrated.