An Application Of Stochastic Frontier In Estimating The Technical Efficiency Of Smallholder Cereal Crop Producers The Case Of Seven Peasant Associations (pas) In The Amhara Region

This study tried to predict the technical efficiency levels of farmers over time andrnthe factors that are responsible to the variation in technical efficiencies amongrnfarmers. We considered seven peasant associations (PAs) in Amhara region fromrnthe four year agricultural households survey panel data that has been conductedrnby the Department of Economics (Addis Ababa University). Parameters from thernstochastic frontier and the technical inefficiency effects model have been estimatedrnsimultaneously. A more flexible stochastic frontier production functional form, i.e. ,rnthe translog, for farmers in Milki, Karafino, Bokafya and Shumsheha and the Cobb Douglasrnrnstochastic frontier production functional form for farmers in other PAsrnhave been found to be appropriate production technologies in estimating the farmrnlevel technical efficiencies. The hypothesis that farmers are fully technically efficientrnso that the conventional (average) production function is adequate has beenrnrejected for all PAs. For two of the PAs (Milki and Shumsheha), appropriaterntechnical efficiency predictions have been obtained based on a truncated normalrndistribution of the inefficiency term whereas a half normal distribution of therninefficiency term gave good predictions of farm level technical efficiencies for thernrest of the PAs. The results in all PAs show the existence of technical inefficiencyrnimplying that there is a hope, at least for a short run, to increase agriculturalrnproduction only by improving the technical efficiency of farmers.

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