Assessing the Economic Efficiency of Dairy Production Systems in Uasin Gishu County, Kenya

Abstract

The objective of this paper is to estimate economic efficiency in the dairy production sector in Uasin Gishu County of Kenya. Zero grazing, semi-zero grazing and open grazing production systems are analyzed separately using the Cobb-Douglas stochastic frontier cost function. In a second stage we examine the degree to which the calculated efficiency correlates with a set of explanatory variables using a censored regression model. The results indicate that each of the three milk production systems is relatively inefficient, with potential in all cases for reducing input costs or increasing output. Economic efficiency increased with the level of intensification of milk production, with open grazing, semi-zero grazing and zero grazing attaining 0.43, 0.51 and 0.69 respectively. The maximum likelihood estimates of milk production were an increasing function of cost of feeds and equipment in the three production systems with statistical significance of 5%. The estimated determinants of economic efficiency were positively related with education and social capital, and negatively related with gender, land size and market access.

Keywords: Dairy production; Economic efficiency; Frontier cost function and Intensification