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A Stochastic Frontier Approach to Model Technical Efficiency of Rice Farmers in Bangladesh: an Empirical Analysis

K. M. M. Rahman
Dept. of Agricultural Statistics, Bangladesh Agricultural University, Mymensingh 2202, Bangladesh

M. I. A. Mia
Dept. of Agricultural Business and Marketing, Faculty of Agricultural Economics and Rural Sociology, Bangladesh Agricultural University, Mymensingh 2202, Bangladesh

M. K. J. Bhuiyan
Dept. of Agricultural Business and Marketing, Faculty of Agricultural Economics and Rural Sociology, Bangladesh Agricultural University, Mymensingh 2202, Bangladesh

Abstract/ Executive Summary:

A study was conducted in the year 2008-2009 to estimate the farm-size-specific productivity and technical efficiency of all rice crops. Farm-size- specific technical efficiency scores were estimated using stochastic production frontiers. There were wide of variations of productivity among farms, where large farms exhibited the highest productivity. Gross return was the highest for small farms and net return was the highest for marginal farms. The lowest net return or the highest cost of production was accrued from both the highest wage rate and highest amount of labour used in medium farms. The marginal farms experienced the highest benefit-cost ratio (BCR) followed by small and medium farms. Average technical efficiency for large, medium, small, marginal and all farms were respectively 0.88, 0.92, 0.94, 0.75 and 0.88. There were significant technical inefficiency effects in the production of rice for marginal farms only. In this case, production cannot be increased by increasing efficiency with the existing technology except in marginal farms. The application of efficient management system would be able to increase production in the marginal farms. For other farms, increased managerial capacity is not enough for increased production, rather new investment and advanced technology are needed to increase production in these farms. On an average, farmers could increase 12 percent output with existing inputs and production technology. Fertilizer, manure, irrigation cost, insecticide cost, area under production and experience were important factors to increase production. In the technical inefficiency effect, age, education and family size had positive impact on efficiency effect, whereas land under household had negative impact on efficiency effect.

Keywords: Stochastic production frontier, Technical efficiency, Farm-category- Specific technical efficiency

Location: 14 different districts of Bangladesh.

Start Date: 00-00-2008

End Date: 00-00-2009

Program Area: Socio-economic and Policy

Non-commodity: Performance

Objectives:

(i) To develop a specification and estimation for a stochastic frontier model to estimate farm-size-specific technical efficiency;

(ii) To identify the factors causing variations in technical inefficiency effects (or technical efficiencies) among the sample farmers;

(iii) To implicate certain development policy.

Methodology:

This study is based on primary data collected from 1360 farmers through direct interview method using pre-tested questionnaires in 14 different districts of Bangladesh. The selection of the districts was purposive considering them as major rice growing districts which contributed about 16 percent of total rice production in Bangladesh. The selection of farmers of different categories was performed using stratified random sampling technique. This study involved four categories of farm households. These are marginal farms (farm size less than 50 decimals); small farms (farm size 50-249 decimals); medium farm (farm size 250-750 decimals); and large farms (above 750 decimals of land). Of the 1360 farm households, 138 farmers were arbitrarily selected and interviewed from large farms, 416 farmers from medium farms, 440 from small farms and 366 from marginal farms. Data were collected by trained field enumerators during the year 2008 to 2009. In order to estimate the level of technical efficiency in a way consistent with the theory of production function, we specified a Cobb-Douglas type stochastic frontier production function. The Cobb-Douglas form of production function has some well known properties that justify its wide application in economic literature. It is a homogeneous function that provides a scale factor enabling one to measure the returns to scale and to interpret the elasticity coefficients with relative ease. It is also easy to estimate and mathematically manipulate. The Cobb-Douglas production function makes several restrictive assumptions. It is assumed that the elasticity coefficients are constant, implying constant shares for the inputs. The elasticity of substitution among factors is unity in the Cobb-Douglas form. Moreover, this being linear in logarithm, the output is zero if any of the inputs is zero, and the output expansion path is assumed to pass through the origin. It is also argued that if interest rests on efficiency measurements and not on an analysis of the general structure of the underlying production technology, the Cobb-Douglas specification provides an adequate representation of the production technology. In addition, its simplicity and widespread use in agricultural economics outweigh its drawbacks. It is less affected by multicollinearity problem and less suffered from degrees of freedom. The model has been estimated for four farm size groups. Aus is a short-duration direct seeded crop which is sown in March-April and harvested in July-August, utilising the pre monsoon rainwater. Aman is sown during June-August to November-December and Boro is grown during November-January to April-June.

Source of Information: The Agriculturists 10(2):9-19 (2012), ISSN-1729-5211

Article Link (Online Journal):

Funding Source:

Total Budget (Tk.) :

Achievement/Findings:

There were wide variations of productivity among different categories of farms, where large farm exhibited the highest productivity; medium farms the second highest productivity and marginal farms the lowest per hectare. The gross return was the highest for small farms and net return was the highest for marginal farms. The lowest net return or the highest cost of production for medium farms was accrued from both the highest wage rate and the highest amount of labour used in this farm. The marginal farms experienced the highest benefit-cost ratio (BCR) followed by small and medium farms, respectively. The vital factors responsible for the increased production were fertilizer, manure, insecticide cost, land and experience. Production was positively influenced by demographic variations also. Older farmers had smaller inefficiencies than that of younger farmers. Technical efficiency increased with the increase in age of farmers. Farmers with the highest education had higher technical efficiency. Farm size has negative relations with efficiency. There were significant inefficiency effects for marginal farms only. With the existing production technology and input use, production can not be increased by increasing efficiency level, except for marginal farms. Advanced technology is needed to increase production. Higher yielding new variety development and improved input management practices are inevitable for increased production.

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