Measuring and explaining multi-directional inefficiency in the Malaysian dairy industry.

Abstract

The purpose of this paper is to measure the technical inefficiency of dairy farms and subsequently investigate the factors affecting technical inefficiency in the Malaysian dairy industry. This study uses multi-directional efficiency analysis to measure the technical inefficiency scores on a sample of 200 farm observations and single-bootstrap truncated regression model to define factors affecting technical inefficiency. Managerial and program inefficiency scores are presented for intensive and semi-intensive production systems. The results reveal marked differences in the inefficiency scores across inputs and between production systems. Intensive systems generally have lowest managerial and program inefficiency scores in the Malaysian dairy farming sector. Policy makers could use this information to advise dairy farmers to convert their farming system to the intensive system. The results suggest that the Malaysian Government should redefine its policy for providing farm finance and should target young farmers when designing training and extension programs in order to improve the performance of the dairy sector. The existing literature on Southeast Asian dairy farming has neither focused on investigating input-specific efficiency nor on comparing managerial and program efficiency. This paper aims to fill this gap.