Profit Efficiency of Groundnut Production: Evidence from Eastern Province of Zambia

Abstract

The study analysed profit efficiency and its determinants in smallholder groundnut production in the context of profit maximization as an incentive for optimum production in Eastern Province of Zambia. The stochastic frontier approach with the application of the flexible translog profit function and inefficiency model was used in estimating the profit efficiency. Secondary data for the 2012 Rural Agricultural Livelihoods Survey from Central Statistical Office of Zambia, which used a multi-stage sampling method, was utilized. Cross sectional data for 1,232 farm households was used in this analysis. Results showed existence of high level of inefficiency in groundnut farming because the gamma ratio (γ = 0.6445) was comparatively large. Seed price and value of fixed capital are key variables highly significant in the profit function. The result further revealed that the profit efficiencies of the farmers varied widely between 9.5% and 92.38%. The groundnut farmers were able to realize 72.5% of their frontier profit on the average suggesting that an estimated 27.5% of the profit is lost due to a combination of technical and allocative inefficiencies. Education level, credit access, land tenure, distance to market, storage facility and weeding were significant factors found to influence profit efficiency. Technologies that enhance fixed capital, improving availability and access to improved seed varieties and credit, and land reform measures aimed at promoting titled land ownership are required to achieve significant positive effects on profit efficiency. Also, policy measures that will improve weed control mechanisms, reduce transportation cost and encourage education advancement and ownership of proper storage facilities among smallholder farmers are advocated.

Keywords: Groundnut, Profit Efficiency, Stochastic Frontier, Zambia