Abstract
This study estimates technical efficiency and scale economies for sample dairy marketing cooperatives in the Rift Valley of Kenya. The maximum likelihood technique was used to estimate a stochastic cost frontier function to determine technical efficiency and scale economies. The estimated long-run average cost curve indicates scale economies, but most of the scale economies are exhausted for the average size of the cooperatives in the sample. The test for scale elasticity was significant at the 10% probability level. Results indicate that cooperatives are technically efficient for the observed technology. Cooperatives can reduce unit costs by expanding volume of milk handled, either through existing members or new members, including merging with other cooperatives. © 1996 John Wiley & Sons, Inc.
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