Are livestock farmers in Kenya efficient? Evidence from a farm-level analysis

The Kenyan livestock sector has a high potential for economic development and poverty reduction amongst smallholder rural communities. The purpose of this paper is, therefore, the estimation of technical efficiency of the livestock farmers with respect to farms heterogeneity. In this way, the paper seeks to address the question of proper model specification of production frontier, distinguishing between inefficiency and farm heterogeneity and the associated influencing determinants. When technology heterogeneity is present in an industry, estimation of a single stochastic frontier will lead to misleading implication about inefficiency policy recommendations. Thus, this technical paper uses the most recent methodological approach (latent class stochastic frontier model) to distinguish different technologies for a representative farm-level sample of 1288 smallholder pastoral livestock households based on the class structure. Our analysis finds that technical efficiency levels rise as the number of classes increases, indicating that unless livestock farmers’ heterogeneity is adequately considered, estimated inefficiency is likely to be biased upward. The observed variation of efficiency score between classes suggests that potential gain can be achieved through indifferent improvement of the farms-specific factors namely the number of livestock production technology adopted, education level, access to markets, access to veterinary drugs and off-farm income. Technical efficiency being between 0.35 and 0.97 is heterogeneous; thereby, only a pro-pastoral policy option based on the identified class structures of the productive unit enables a more accurate and effectual measures to address efficiency challenges within the livestock industry.