Economic Efficiency in Barely Production: The Case of Chole District, East Arsi Zone, Oromia National Regional State, Ethiopia

Abstract

As the world’s population grows and the potential to increase production by bringing more resources into use becomes more limited, it is natural that the efficiency with which farmers use available resources would become more important as a topic of investigation. Therefore, this study aimed at analyzing the economic efficiency of barley production in Chole district using cross sectional data collected from 150 randomly selected sample households during 2012/13 production season. Cobb-Douglas production function was fitted using stochastic production frontier approach to estimate technical, allocative and economic efficiency levels, whereas Tobit model was used to identify factors affecting efficiency levels of the sample farmer. The results indicated that there was a significant inefficiency in barley production in the study area. Accordingly, the mean technical, allocative and economic efficiencies of barley producer farmers were 78.20, 46.05 and 35.26 percent, respectively. This implies that output can be increased by 21.8 percent or cost can be reduced by 53.95 percent given the existing level of technology and resources. This inefficiency however, can be improved if factors that determine efficiency level of farmers in the production of barley in the study area are identified and targeted. Results of the Tobit model revealed that age, education, total cultivated land, extension contact, family size, soil fertility, off/non-farm income, sex, crop rotation and livestock ownership positively and significantly affected technical efficiency while land fragmentation and total expenditure had negative and significant effect. Result of the Tobit model also revealed that age, education, total cultivated land, training, crop rotation and livestock ownership positively and significantly affected allocative efficiency while extension contact, land fragmentation, distance of the farm from homestead, and total expenditure were found to have negative and significant effect. Among the factors hypothesized to affect the level of economic efficiency, age, education, training, family size, off/non-farm income, crop rotation and livestock ownership were found to have positive and significant effect on economic efficiency in barley production. The results of the study indicated that there was a room to increase the efficiency of barley producers in the study area through policies and strategies directed towards the above mentioned determinants.

Keywords: Cobb-Douglas, stochastic frontier, Tobit.

DOI: 10.7176/JRDM/66-03

Publication date:June 30th 2020