New research into the productivity of farms suggests dairying won't benefit from diversifying, but sheep and beef farms will.
Not for profit research institute Motu worked with the Productivity hub to carry out the research called, New Zealand's Agricultural Productivity Report Card.
Motu director and senior fellow Adam Jaffe said they used Statistics New Zealand data on all agricultural firms to look at their productive activities over a 10 year period.
Dr Jaffe said the research found there was a lot of variation in the efficiencies of businesses, and said the information could be used to help others lift their productivity.
He said they drew on the inputs and outputs of each firm.
"So the output is measured as revenue, it's measured in dollars, we don't actually try to look at any kind of physical relationships in terms of kilos of milk powder of kilo of beef.
"On the input side we have the number of employees, we have the capital that's been invested in the firm, the number of hectares of productive land and we have a measure of the expenditure on other material inputs like fertiliser."
Dr Jaffe said between 2002 and 2008, the level of productivity in the dairy industry increased more rapidly than that of sheep and beef.
However, in 2009 this reversed following a 35 percent drop in dairy's production.
He said they are two very different systems, and sheep and beef farming was better suited to incorporate other aspects of farming, such as forestry and dairy grazing.
"We do find for sheep and beef farms that having secondary activities such as dairy or forestry, appears to increase their productivity, whereas for dairy farms it does not."
"I think what that suggests is that dairy farming is a very profitable and specialised activity and diluting it with these other activities does not make the farm more productive, but sheep and beef is less profitable per hectare and more diffuse activities, so bringing in some of these other activities can increase their revenue, even controlling for their capital and labour inputs."