PRODUCTION EFFICIENCY, FINANCIAL PERFORMANCE AND IMPACT OF DAIRY ENTERPRISES IN HADIYA ZONE, ETHIOPIA

Abstract

Dairy enterprises are one of the most important sources of economic growth. This makes enterprises a major area of concern for government and nongovernment organizations with varieties of development objectives. However, studies in both academic and policymaking circles on the production efficiency, financial performance and impact of dairy enterprises on employment creation and income generation were limited. This study sought findings on production efficiency, financial performance and impact of dairy enterprises on employment creation and income generation in Hadiya zone, Ethiopia. The study on the production efficiency estimation and financial performance were performed on 212 dairy enterprises at the enterprise level and the evaluation of impact of membership in dairy enterprises on employment creation and income generation was conducted at household level using 385 randomly selected households. The data were analyzed using descriptive statistics and econometric models including stochastic frontier model, profitability ratio analysis, multiple linear regression model and propensity score matching technique. The overall average technical efficiency, allocative efficiency, and economic efficiency scores of dairy enterprises obtained from stochastic frontier model were 60.18%, 59.92% and 36.16%. The major sources of technical efficiency differentials were education level, experience of the manager, access to training, access to market, sex of the manager and access to credit at different significant levels. Furthermore, the allocative efficiency of dairy enterprises was statistically and significantly determined by number of employees, experience of the manager and access to market. The result of the study also confirms that the economic efficiency of dairy enterprises was statistically and significantly determined by number of employees, access to training and access to market. According to result obtained from profitability ratio analysis 67% of dairy enterprises were found to be profitable whereas 33% of dairy enterprises were incurred loss. The result of multiple linear regression analysis showed that financial performance of dairy enterprises was positively and significantly determined by age of the enterprise educational level of the manager, number of employees, amount of initial capital, entrepreneurial skill, experience of the manager, access to training, access to market, xv consultancy service and access to credit. Propensity score matching results showed that membership in dairy enterprise had a significant positive impact on members’ employment creation and income generation. The result revealed that membership resulted in an average increment of household’s annual employment creation by about four persons (33.98%) and income by Birr 12,339.00 (32.57%). The result further showed that the impact estimates were insensitive to unobserved selection bias. It is, therefore, essential to expand and strengthen development of dairy enterprises and the membership of households in dairy enterprises to increase employment opportunities and income. The government as well as other concerned bodies should give due attention to update and improve entrepreneurial skills by applying innovative training, ensuring experience and best practice sharing system, creating market access, facilitating sufficient consultancy service and credit access, monitoring and evaluation of all benefits generated and costs incurred as well as effective utilization of employees to ensure higher production efficiency levels and financial performance of dairy enterprises and their impact on employment creation and income generation