ECONOMIC EFFICIENCY OF SMALLHOLDER WHEAT PRODUCERS IN DAMOT GALE DISTRICT, SOUTHERN ETHIOPIA

Abstract

Increase of agricultural production and productivity is very important to achieve the goal of food security. An efficient use of the existing resources by farm households improves their productivity and thereby increases their output. Wheat is one of the dominant crops and its productivity is low in the study area. This means that it is possible to obtain additional output from existing inputs used, if resources are properly used and efficiently allocated. This study aimed to estimate overall production efficiency and identifying the factors that explain variation in efficiency of wheat producing farmers in Damot Gale district of southern Ethiopia using cross-sectional data obtained from 123 randomly selected farmers in 2014/15 production year. The maximum likelihood estimates of Cobb-Douglas stochastic production function was used to predict the TE of farmers. The use of self-dual Cobb-Douglas production frontier functions allows the cost frontier to be derived and used to estimate EE. The coefficients of the Cobb-Douglas production function are interpreted as elasticity and summing the individual elasticity yields a scale elasticity of 0.67. This indicates that farmers facing decreasing returns to scale. This means that a 1% simultaneous increase in all inputs at the sample mean will increase wheat output by about 0.67%. The analysis of resource productivity revealed statistically significant positive elasticity of ox, labor, seed and urea implying that increase in each of these inputs will increase wheat output. The study also found mean indices of technical, allocative and economic efficiencies were 77.68%, 49.26% and 37.47% respectively. The study found that age of the household head, education level, family size, off/non-farm income and extension contact contributed significantly and positively to technical efficiency, while it is negatively related with proximity. The allocative efficiency of farm households was positively and significantly affected by off/non-farm income, time of sowing, row planting and proximity to homestead. Economic efficiency of the farm households was positively and significantly affected by time of sowing, off-farm income, and row planting indicating that these variables determine the level of economic efficiency positively. On the contrary, age of the household head, extension contact and credit are negatively related with allocative efficiency and credit and proximity to homestead are negatively related with economic efficiency level. Policy implication of this study is that there is potential for farmers to increase wheat production by strengthening established formal and informal type of farmers' education, adopting projects or programs that would support off/non-farm income activities, awareness creation on efficient allocation of resources, strengthening awareness creation on row planting. In general there is a need to intervene not only in facilitating access to credit but also adopting risk and loss management policy and strategy like saving for insurance, increasing the frequency of extension contact, improving farmers’ capacity and capability of use of modern inputs along with recommended rate, strengthening of extension training services about row planting for efficient resource allocation which helps to improve efficiency and productivity