ECONOMIC EFFICIENCY OF BARLEY PRODUCTION: THE CASE OF SMALLHOLDER FARMERS IN MEKET DISTRICT, AMHARA NATIONAL REGIONAL STATE, ETHIOPIA

Abstract

This study analyzed the economic efficiency of barley production by smallholder farmers in Meket district, Amhara National Regional State, Ethiopia using cross sectional data collected from a sample of 123 barley producers during the 2015/16 production season by applying two stage random sampling. To address the objective of the study, both descriptive statistics and econometric models were used to analyze the data. The trans-log functional form was chosen to estimate both production and cost function and OLS estimation method was applied to regress allocative and economic inefficiency factors while, technical inefficiency factors were analyzed by using single stage estimation approach. The estimated stochastic production frontier model indicated that input variables such as fertilizer, human labor and oxen power were the significant variables to increase the quantity of barley output while, barley seed had a negative effect. The estimated mean levels of technical, allocative and economic efficiencies of the sample farmers were about 70.9%, 68.6% and 48.8%, respectively which revealed that, presence of a room to increase their technical, allocative and economic efficiencies level on average by 29.1%, 31.4% and 51.2%, respectively with the existing resources. Among the hypothesized factors that affect technical, allocative and economic inefficiencies; extension contact and number of barley plots significantly and negatively affected all inefficiencies level. Besides, distance of residence from the nearest main market was found to have a positive and significant effect on all inefficiencies of sampled household farmers. On the other hand, participation of the households in non-farm income activities and their farming experience had positive while, livestock ownership had negative and significant effect on allocative and economic inefficiencies. Likewise, total expenditure and soil fertility also had positive and significant effect on technical and economic inefficiencies. Hence, emphasis should be given to decrease the inefficiency level of those more inefficient farm households via experience sharing among the farmers and usage of improved or certified barley seed. Besides to this, policies and strategies of the government should be directed towards increasing farmers’ education, improve the system of input distributions and institutional facilities