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Measurement of Economic Efficiency of Producing Fish in Bangladesh with Translog Stochastic Cost Frontier

M. A. Alam
Lecturer
Department of Agricultural Statistics, Bangladesh Agricultural University, Mymensingh

K. M. Mostafizur Rahman
Associate Professor
Department of Agricultural Statistics, Bangladesh Agricultural University, Mymensingh

M. A. Quddus
Professor
Department of Agricultural Statistics, Bangladesh Agricultural University, Mymensingh

Abstract/ Executive Summary:

A Translog stochastic frontier cost function was estimated to determine the economic efficiency of fish production in Bangladesh. The economic inefficiency effect model was also estimated simultaneously with the stochastic frontier to identify factors that influence efficiency. The coefficients of age and experience were negative and significant in the stochastic frontier which meant that the cost of fish production decreased with the increases in age and experience of the farm operators. The sign of farm size was positive and significant in the inefficiency effect model, which meant that the large farmer was economically less efficient than a small farmer. The economic efficiency varied from 15% to 99% at the aggregate level, 96% to 98% in Mymensingh and 63% to 99% in Rangpur region. The mean economic efficiencies were 97%, 89% and 71% for Mymensingh, Rangpur and all regions, respectively. There appeared to be 3%, 11% and 29% economic inefficiencies for Mymensingh, Rangpur and all regions, respectively. This study indicated that the cost of production could be reduced by 29% keeping the output constant at the aggregated level. For policy options, extension services should be made available for all fish farmers. Education should be another one of the top priorities of the government to develop the necessary human capital for sustainable development of the fishery sector.

Keywords: Economic efficiency, Producing fish, Bangladesh, Translog Stochasticcost Frontier

Location: Bangladesh

Start Date:

End Date:

Program Area: Socio-economic and Policy

Commodity: Fish

Objectives:

The specific objectives of the study are as follows: i )to measure the productivity and profitability of fish production in Bangladesh; ii) to estimate the economic efficiencies of fish farmers; iii )to estimate returns to scale of fish production;i v)to identify factors influencing fish production;v)to suggest some policies to increase productivity, profitability and efficiency of fish production.

Methodology:

Data: The two regions, that is, Rangpur and Mymensingh were selected purposively considering the relative importance of these regions in producing fish. Mithapukur upazila of Rangpur district and Trishal upazila of Mymensingh district were selected for this study. Production systems of the selected area were poly-culture.To collect the primary data from the farmers of Bangladesh, a probability sampling technique was adopted. A preliminary survey was conducted in the study areas in order to have a potential idea about relevant information. At first, a sampling frame of farmers producing fish was constructed with the help of village leaders and some other relevant people. Afterward, a stratified random sampling method was used to select the fish farmers for the study. The data were collected for the period January to March 2005. The sample was composed of small (below 1.00 hectare), medium (1.00 -2.50 hectare), and large (above 2.50 hectare) farms on the basis of land area. One hundred and twenty fish farmers were interviewed in this study, of which 20 were small, 25 were medium, and 15 were large farmers from Mithapukur upazila of Rangpur district and the rest 60 farmers constituting the above farm groups were taken from Trishal upazila of Mymensingh district. Model Specification: For this study, a Translog stochastic cost frontier was estimated simultaneously with the economic inefficiency effect model using maximum likelihood. To estimate region-specific economic efficiencies, different estimation of translog stochastic cost frontier was also done. The Cobb-Douglas form of the production or cost function imposes certain restrictions, such as, the elasticity coefficients are constant, implying constant shares regardless of the input level or input cost and the elasticity of substitution among inputs is unity, whereas the translog production or cost function does not impose these restrictions upon the production or cost structure and it is a flexible functional form. Another advantage of the translog stochastic frontier function is that with the help of this function we can estimate the effects of interactions of different complementary variables along with the individual effect of each variable on output or cost. Furthermore, more than one output can be used as an independent variable in the translog cost frontier. Nevertheless, it has certain problems also.

Source of Information: Bangladesh J.Agric. Econs XXVIII, 1&2 (2005) 33-48

Article Link (Online Journal):

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

This study indicated that the cost of production could be reduced by 29% keeping the output constant at the aggregated level. For policy options, extension services should be made available for all fish farmers. Education should be another one of the top priorities of the government to develop the necessary human capital for sustainable development of the fishery sector.

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