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Non-farm Employment and Production Efficiency of Farm Household in Bangladesh

Shakila Salam
Assistant Professor, Institute of Agribusiness and Development Studies, Bangladesh Agricultural University, Mymensingh-2202.

Siegfried Bauer
Professor, Department of Regional and Project Planning, Justus-Liebig University, Giessen, Germany

Abstract/ Executive Summary:

This article attempts to examine the effect of non-farm employment on rural farm household’s technical efficiency in Bangladesh. Cobb-Douglas production function through stochastic frontier model with single stage estimation procedure is used to estimate farm efficiencies. The study was based on primary data collected from a cross-section of 153 farm households, drawn by multi-stage purposive sampling from three districts of Bangladesh. Part-time farmers are less technically efficient than the full-time farmers which indicate negative influence of non-farm employment on farm efficiency. A mixed influence on technical efficiency is found when non-farm employment is broken down into different sources. Compared to other types of non-farm activities, self-employment increases the farm technical efficiency. Results indicate that numbers of active household members, household head age, farm size, and ownership of agricultural machines are important factors for reducing the inefficiency level of part-time agricultural households.

Keywords: Non-farm employment; Technical efficiency; Stochastic frontier; Farm household; Bangladesh

Location: Mymensingh, Comilla and Dinajpur districts

Start Date: 00-07-2014

End Date: 00-11-2014

Program Area: Socio-economic and Policy

Non-commodity: Efficiency

Objectives:

Analysing the impact of non-farm income on farm technical efficiency is of greater importance and aims to fill the gap in this area.

Methodology:

Data Sources The required data for this study was derived from a cross-sectional primary data set, collected through a farm household survey from 3 districts, namely Mymensingh, Comilla and Dinajpur districts of Bangladesh. Among these districts, Comilla is a district where non-farm employment and migration rate is too high and 39.41 percent of households fully depend on non-agricultural activity for their livelihood (BBS, 2011). According to latest available data, Mymensingh added the highest gross value to agriculture, while Comilla added comparatively lower value in 2005 (BBS, 2006). Bhaluka and Haluaghat Upazilas under Mymensingh, Borura Upazila under Comilla and Birol Upazila under Dinajpur district were selected as study areas. Finally, multi-stage purposive sampling procedure was employed to identify the 153 sample households from four villages. Sample households were categorized into farm households (income source is only agricultural activities), and farm and non-farm income earning households or part-time farming households (income source is both agriculture and non-farm activities) consisting of 59 and 94 households respectively. Data were collected through a key information and questionnaire survey with farm households during July to November 2014. For gathering qualitative information, knowing the actual situation and crosschecking the data, Focus Group Discussion (FGD) with the farmers was conducted in each of the selected villages. Empirical model The term technical efficiency (TE) measures the degree to which a producer maximize possible outputs using a given set of inputs, or producing a given level of output by using possible minimum inputs. The first definition leads to the term of output-oriented efficiency measures, whereas the next one indicates input-oriented efficiency measures (Coelli et al, 2005a). In this analysis, an output-oriented efficiency measure is used because it is mostly practiced in developing country’s agricultural production system.There are two approaches for measuring technical efficiency: (i) the parametric and (ii) the non-parametric approach. Like many other previous studies, this study considered parametric approach for estimating TE and its determinants in a single-equation procedure. This single-equation approach is widely used and less objectionable from a statistical point of view, as it provides more efficient inference regarding included parameters. As based on a certain point of production frontier (where technical efficiency is zero) the ratio between observed (actual) output and potential output calculates the degree of technical efficiency of each agricultural household; stochastic frontier approach is best suited to this situation. Thus, the amount by which an agricultural household actual production level drops below the frontier level is measured by technical inefficiency

Source of Information: Bangladesh J. Agric. Econs. XXXVII, 1&2 (2014, 2015) 55-68

Article Link (Online Journal):

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

Nowadays, a large portion of the rural households are involved in one or more non-farm activities along with farming which indicates part-time farming as an emerging livelihood strategy in the rural areas of Bangladesh. The central theme of this study has been to examine the role of non-farm income of rural farm households on farm production efficiency. From the Cobb-Douglas production function analysis, it is found that part-time farmers are less technically efficient than the full-time farmers. That means participating in non-farm activities causes to be farm technically more inefficient. Wider variation in TE scores of part-time farm might indicate higher level of resource utilization inefficiency of households. However, both pure and part-time farm’s efficiency scores indicate room for further improvement. Results also show that Land and labour are the most vital components for increasing farm production. Modern farm technologies, like machinery for irrigation and land preparation also have great influence on farm production. From the efficiency analysis, it is also found that income from self-employment activities increases the technical efficiency of farmers compared to other types of non-farm activities. Numbers of active household members, household head age, farm size, and ownership of agricultural machines are important factors for reducing the inefficiency level of non-farm income earning households. Though involvement in different non-farm activities reduces farm technical efficiency, further improvement of farm management practices using the existing technologies can be suggested through which farm production can still be substantially increased.

Knowledge Management: Journal