Analysis of technical efficiency of crop producing smallholder farmers in Tigray,Ethiopia

This paper provides new estimates of small holder farmers' technical efficiency and its principal determinants using a rural Tigray micro finance survey data collected in 2009. Both descriptive and econometric methods are used. The hypotheses tests confirm the adequacy of Cobb-Douglas over Translog frontier; the appropriateness of using SFA over OLS; the joint statistical significance of inefficiency effects; the appropriateness of using truncated normal distribution for one sided error; and the increasing returns to scale nature of the stochastic production function. The maximum likelihood parameter estimates showed that except labor all input variables have positive and significant effect on production. The results reveal that number of oxen owned has the highest elasticity, then land, followed by labor and value of farm equipment. The analysis shows that the mean technical efficiency of farmers is 60.38% implying that output in the study area can be increased by 39.62% at the existing level of inputs and current technology by operating at full technical efficient level. The estimated stochastic frontier production function revealed that all determinants (except households' sex, farm size, participation in irrigation, and member to association) have significant effect on efficiency of farmers. The sign of coefficients of determinants is found as the expected, except households' sex. Education of household heads, family literacy, family size, share cropping, credit access, crop diversification, and land fertility are found to enhance efficiency. In contrast, Households' age, dependency ratio, livestock size, and off-farm activity are found to increase inefficiency.