Economic Efficiency of Smallholder Producers in Barley Production: The Case of Legambo District, South Wollo Zone, Amhara Region, Ethiopia

Abstract

Even though the agricultural sector in Ethiopia is one of the most important sectors in the country,the productivity of the sector is lower compared to other developing countries. Efficient use of resources supported by application of modern technologies becomes more important to increase the productivity of the sector. This study was conducted in Legambo district, Amhara region, Ethiopia; with specific objectives; to estimate the levels of technical, allocative and economic efficiencies of smallholder producers in barley production and identify the main factors affecting of inefficiencies. The study was mainly based on the data obtained from 200 farmers selected through two stage sampling technique. Cobb-Douglas production function was fitted using stochastic production frontier model to estimate the levels of technical, allocative and economic efficiency; while, the Tobit model was used to identify factors affecting of inefficiencies. The estimated result of the frontier model indicated that there is space to increase barley output by increasing the use of farm inputs. Besides, the mean technical, allocative and economic efficiency of sample households were 75.1, 71.7, and 53.9 percent, respectively. This implies that output can be increased by 24.9%; the input cost can be reduced by 28.3 % and production cost decreased by 46.1% with existing level of technology and resources. A two-limit tobit model result indicated that technical efficiency positively and significantly affected by sex, education, livestock, non-farm income, and credit use; while, total expenditure had a negative and significant effect. The distance of farm from home and distance to nearest market had a negative and significant effect on allocative and economic efficiency; whereas, crop rotation and frequency of extension contact had a positive and significant effect on allocative efficiency. Economic efficiency was negatively and significantly affected by farm size; while, crop rotation, sex, non-farm income and frequency of extension contact had a positive and significant effect. So, it is important to formulating appropriate policies and strategies directed towards the above mentioned significant variables of inefficiencies of in the district