Who is technically efficient in Crop Production in Tigray Region, Ethiopia? Stochastic Frontier Approach

Abstract

This paper provides new estimates of small holder farmers' technical efficiency and its principal
determinants using a rural Tigray micro finance survey data collected in 2009. Both descriptive and
econometric methods are used. The hypotheses tests confirm the adequacy of Cobb-Douglas over
Translog frontier; the appropriateness of using SFA over OLS; the joint statistical significance of
inefficiency effects; the appropriateness of using truncated normal distribution for one sided error; and
the increasing returns to scale nature of the stochastic production function. The maximum likelihood
parameter estimates showed that except labor all input variables have positive and significant effect on
production. The results reveal that number of oxen owne d has the highest elasticity, then land, followed
by labor and value of farm equipment. The analysis shows t h a t the mean technical efficiency of farmers
is 60.38% implying that output in the study area can be increased by 39.62% at the existing level of inputs
and current technology by operating at full technical efficient level. The estimated stochastic frontier
production function revealed that all determinants (except households' sex, farm size, participation in
irrigation, and member to association) have significant effect on efficiency of farmers. The sign of
coefficients of determinants is found as the expected, except households' sex. Education of household
heads, family literacy, family size, share cropping, credit access, crop diversification, and land fertility are
found to enhance efficiency. In contrast, Households' age, dependency ratio, livestock size, and off-farm
activity are found to increase inefficiency.