Estimation of profit efficiency of smallholder rice farmers in Uganda: A stochastic frontier approach

Abstract

Although rice has been regarded as a strategic crop for increasing incomes and food security in Uganda, the sub-sector is still characterized by yield gaps, post-harvest losses, poor coordination and improper marketing systems. These have resulted into low productivity and inefficiency. This study assessed the level of profit efficiency, its distribution by marketing models and the sources of inefficiency among smallholder rice farmers in northern Uganda. A single-step stochastic profit frontier approach was employed to predict profit efficiency and sources of inefficiency of 442 smallholder rice farmers using Maximum Likelihood Estimation techniques. Results revealed that seed, labor and transport costs were significantly high, while the mean profit efficiency level of rice farmers was 59%. Further, farmers who engaged in group marketing exhibited a higher profit efficiency level (65%) compared to those in contract marketing (56%) and individual marketing (59%) models. The major sources of inefficiency were use of hired labor and access to market information. However, inefficiency in rice production had a negative relationship with group marketing, marital status (married), gender of household head (male) and cultivation of both upland and lowland rice varieties. The study contends that tapping the unutilized profit efficiency potential in rice production and marketing will lead to improvement of smallholder farmers’ performance in rice markets. The study therefore, recommends the need for establishing farmer-affordable local seed businesses, strengthening farmer groups, developing labor-saving technologies and providing market-tailored trainings to farmers. Moreover, the geographical-based differences in profit efficiencies requires location-specific interventions and benchmarking among the best performers. • Smallholder rice farmers in Uganda can increase profits by about 41% under similar input levels and/or combinations. • Smallholder rice farmers incur high seed and labor costs that erodes their profit margins. • Group marketing plays a significant role in enhancing profit efficiency. • Use of hired labor is one of the dominant sources of inefficiency among smallholder rice farming households.