Abstract
The efficient use of inputs is indispensable in many developing countries, such as Ethiopia. This study assesses the level and determinants of technical efficiency of smallholder farmers using the true fixed effects (TFE) model. The TFE model separates inefficiency from unobserved heterogeneity. Empirical data come from four rounds of panel data (1994–2009) from the Ethiopian rural household survey (ERHS). A one-step maximum likelihood estimator was employed to estimate the Cobb-Douglas stochastic frontier production function and factors influencing technical efficiency. The results indicated that the major variables affecting technical efficiency are policy responsive, albeit to varying degrees: education of the household head, family size, farm size, land fragmentation, land quality, credit use, extension service, off-farm employment, and crop share. The analyses also identify variables amenable to policy changes in the production function: labor, traction power, farm size, seeds, and fertilizer. The mean household-level efficiency for the surveyed farmers is 0.59, indicating that farmers could improve technical efficiency. This implies that smallholder farms in Ethiopia can reduce the input requirement of producing the average output by 41% if their operations become technically efficient. This study recommends that the above policy variables be considered to make Ethiopian smallholder farmers more efficient.
Highlights
The agricultural sector plays an important role in many developing countries, such as Ethiopia.In Ethiopia, agriculture accounts for 41.1%, 39.6%, 37.5%, 36.3%, 34.9% and 33.3% of gross domestic product (GDP) in 2013/14, 2014/15, 2015/16, 2016/17 and 2017/18, respectively (National Bank of Ethiopia (NBE) 2019), 80% of employment, 70% of raw materials for industry, 85% of food supplies to the country, and 81% of foreign earnings (AfDB 2016)
In panel data models, inefficiency can be seen as time-invariant (Battese and Coelli 1988; Kumbhakar 1987; Pitt and Lee 1981; Schmidt and Sickles 1984). These first-generation stochastic frontier analysis (SFA) panel models were explicitly developed to account only for the persistent part of inefficiency; i.e., the inefficiency term is assumed to be constant through time but individual-specific
Farmers produce more than 60 crops and 10 animal products
Summary
The agricultural sector plays an important role in many developing countries, such as Ethiopia. In Ethiopia, agriculture accounts for 41.1%, 39.6%, 37.5%, 36.3%, 34.9% and 33.3% of gross domestic product (GDP) in 2013/14, 2014/15, 2015/16, 2016/17 and 2017/18, respectively (National Bank of Ethiopia (NBE) 2019), 80% of employment, 70% of raw materials for industry, 85% of food supplies to the country, and 81% of foreign earnings (AfDB 2016). By 2025, 83% of the expected global population of 8.5 billion will reside in developing countries, 140 million of whom will live in Ethiopia. Agriculture in Ethiopia is characterized as being subsistence farming, but plays a crucial role in more than 14 million smallholder farming households and accounts for approximately 95% of agricultural production and 80% of employment (Central Statistics Agency (CSA) Reports). The sector has one of the lowest productivity levels in the world and involves farming of less than 1.5 hectares per household on average (FAO 2016)
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