A Stochastic Production Frontier Approach: Determinants of Technical Efficiency in Small Scale Tea Farmers

Abstract

Most small-scale tea farmers have still failed to produce a recommendable among of green tea yield per hectare with Ugandan tea out-growers producing half of what their counterparts produce per hectare in Kenya and Malawi. Using a random sampling technique 220 respondents were interviewed using structured questionnaires, 110 were small scale contract tea out growers while 110 were small scale non-contract tea out growers. A stochastic production frontier was used to estimate the technical efficiency scores of both categories of farmers and the technical efficiency scores were regressed against socio economic characteristics of the tea farmer using the Tobit model to determine which factors influence technical efficiency of small-scale tea farmers. The results indicated a significant mean score difference between technical efficiency of contract and non-contract tea out-growers. The results further established that, quantity of fertilizer used by contract and non-contract out-growers and access to credit were positive determinants of technical efficiency while age squared of the farmer, size of land under tea cultivation and off-farm income related activities were found to negatively affect technical efficiency scores. Policy makers should make further efforts in strengthening financial institutions like micro finance and other arrangements that can relax farmers' liquidity constraints and help them afford traditional inputs.