Rice growing farmers efficiency measurement using a slack based interval DEA model with undesirable outputs

Abstract

In recent years eco-efficiency which considers the effect of production process on environment in determining the efficiency of firms have gained traction and a lot of attention. Rice farming is one of such production processes which typically produces two types of outputs which are economic desirable as well as environmentally undesirable. In efficiency analysis, these undesirable outputs cannot be ignored and need to be included in the model to obtain the actual estimation of firm’s efficiency. There are numerous approaches that have been used in data envelopment analysis (DEA) literature to account for undesirable outputs of which directional distance function (DDF) approach is the most widely used as it allows for simultaneous increase in desirable outputs and reduction of undesirable outputs. Additionally, slack based DDF DEA approaches considers the output shortfalls and input excess in determining efficiency. In situations when data uncertainty is present, the deterministic DEA model is not suitable to be used as the effects of uncertain data will not be considered. In this case, it has been found that interval data approach is suitable to account for data uncertainty as it is much simpler to model and need less information regarding the underlying data distribution and membership function. The proposed model uses an enhanced DEA model which is based on DDF approach and incorporates slack based measure to determine efficiency in the presence of undesirable factors and data uncertainty. Interval data approach was used to estimate the values of inputs, undesirable outputs and desirable outputs. Two separate slack based interval DEA models were constructed for optimistic and pessimistic scenarios. The developed model was used to determine rice farmers efficiency from Kepala Batas, Kedah. The obtained results were later compared to the results obtained using a deterministic DDF DEA model. The study found that 15 out of 30 farmers are efficient in all cases. It is also found that the average efficiency values of all farmers for deterministic case is always lower than the optimistic scenario and higher than pessimistic scenario. The results confirm with the hypothesis since farmers who operates in optimistic scenario are in best production situation compared to pessimistic scenario in which they operate in worst production situation. The results show that the proposed model can be applied when data uncertainty is present in the production environment.