Abstract
This study analyzed factors affecting profit efficiency of rice farms in wet-season lowlands in the Champhone District of Savannakhet Province in the Lao People’s Democratic Republic based on a farmer’s decision to maximize profits. The profit efficiency approach has an advantage in that it provides insights into both inputs and outputs. To analyze profit efficiency, the stochastic production frontier model with assumptions about the time period and types of inputs was applied in the study. The study found similar results to previous studies related to efficiency measurements using a stochastic frontier analysis. Rice production and selling prices have positive signs with respect to the rate of return; however, costs of labor, seed, irrigation, fertilizers, and maintenance have negative signs with respect to the rate of revenue. However, the results from the inefficiency model showed the different role of education. The previous studies found that education level did not play an important role in improving rice productivity in Laos, however, the present study found that education level played a significant role in increasing profits.
Highlights
Analyzing farm efficiency provides information to decision makers in order to improve the agricultural sector in many developing countries
In order to understand all possibilities of yield inefficiency in wet-season lowland rice farms in the Lao People’s Democratic Republic ( Laos), a profit efficiency model was utilized in this study
The value of gamma (γ), the variance ratio of the profit frontier model is 0.6130. This implies that approximately 61 percent of the variation in the data collected is produced from an inefficiency error term, while approximately 29 percent of the variation is produced from pure noise [22]
Summary
Analyzing farm efficiency provides information to decision makers in order to improve the agricultural sector in many developing countries. Most studies on farm efficiency have focused on agricultural production based on the relationships between inputs and outputs [2]. When technical efficiency is measured with a production frontier model, it is assumed that the farmer maximizes output under the given inputs [3]. Based on the behaviors of cost minimization, farmers consider the combination of least-cost inputs in order to achieve efficiency, while maintaining the same level of output. As a frontier approach for cost minimization measures inefficiency related to inputs, it provides fragmentary insights associated with inputs. In the efficiency measurement for profit maximization, inputs and outputs can be considered as choice variables [4], i.e., the inefficiency of a farm is determined on the basis of various aspects. In order to understand all possibilities of yield inefficiency in wet-season lowland rice farms in the Lao People’s Democratic Republic ( Laos), a profit efficiency model was utilized in this study
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