FARM LEVEL EFFICIENCY OF RUBBER AS A PERENNIAL CROP USING COBB-DOUGLASS PRODUCTION FRONTIER
Keywords:Technical Efficiency, Stochastic Frontier Analysis, Cobb-Douglass, Production Frontier, Rubber and Malaysia
This paper examines the parametric efficiency analysis of rubber production in Malaysia using Stochastic Frontier Analysis (SFA). The 3 different sample sizes used were 307, 206 and 101 for all-age, matured-age and old-age categories respectively. The results of the study reveals that the mean values of the rubber yield under all-age category was 3,638.28kg/ha while that of the matured-age and old-age categories 4,611.34kg/ha and 1,653.61kg/ha respectively. The Maximum likelihood estimates (MLE) results revealed that 5 independent variables were significant under all-age and matured-age categories while the old-age category has all the independent variables significant. With regards to elasticity of production for rubber task, 1% increase in number of rubber tree/ha leads to an increase in 0.76, 0.70 and 0.61 per cents in all-age, matured-age and old-age crop categories respectively. The coefficients values of the sigma squared for the all-age, matured-age and old-age were 0.14, 0.26 and 0.03 respectively, while the gamma values for the respective crops age categories stood at 1.00, 1.00 and 0.5. The coefficients values of all-age crops category showed that 3 variables were statistically significant at 1% level of significance. 2 variables were having negative coefficients while the remaining 1 had positive coefficient. The mean technical efficiency scores for all-age, matured-age and old-age crops categories were found to be respectively 0.70, 0.77 and 0.72. None of the crops age categories have farms on the frontier. The study concludes that Race and marital status were found to be very critical in determining efficiency of all-age crop category. Also, the matured-age crops are better than the other two crop-age categories in terms of efficiency. Also, both the matured-age and the all-age crop categories are experiencing decreasing return to scale of the production process while the old-age category has an increasing return to scale production process. The study recommends downsizing some of the inputs especially farm size, fertilizer application rate as well as farm tools.
Aigner, D. J. Lovell, C. A. K. and Schmidt, P. (1977). “Formulation and Estimation of Stochastic Frontier Production Function Models”, Journal of Econometrics, 6, 21-37. DOI: https://doi.org/10.1016/0304-4076(77)90052-5
Battese, G. E., & Coelli, T. J. (1995). A Model for Technical Inefficiency Effects in A Stochastic Frontier Production Function for Panel Data. Empirical Economics, 20(2), 325-332. DOI: https://doi.org/10.1007/BF01205442
Coelli, T. (1998). A Multi-Stage Methodology for the Solution of Orientated DEA Models.Operations Research Letters, 23(3), 143-149. DOI: https://doi.org/10.1016/S0167-6377(98)00036-4
Cornwell, C., & Schmidt, P. (1995). Production Frontiers and Efficiency Measurement. In the Econometrics of Panel Data (Pp.845-878). Springer Netherlands.
Giroh, D.Y., Moses, J.D., &Yustus,F.S(2012).Technical Efficiency and Cost of Production Among Small Holder Farmers in Edo State, Nigeria. World Rural Observations 3(3)
Greene, W. H. (1995). Frontier Production Functions. Handbook of Applied Econometrics, 2, 81-166.
Horrace, W. C., & Schmidt, P. (1996). Confidence Statements for Efficiency Estimates From Stochastic Frontier Models. Journal of Productivity Analysis, 7(2-3), 257-282. DOI: https://doi.org/10.1007/BF00157044
Jondrow, J., Lovell, C. K., Materov, I. S., & Schmidt, P. (1982). On The Estimation of Technical Inefficiency in the Stochastic Frontier ProductioFunction Model. Journal of Econometrics, 19(2-3), 233-238. DOI: https://doi.org/10.1016/0304-4076(82)90004-5
Kumbhakar, S. C., Ghosh, S., & Mcguckin, J. T. (1991). A Generalized Production Frontier Approach for Estimating Determinants of Inefficiency in US Dairy Farms. Journal of Business & Economic Statistics, 9(3), 279-286.
Lovell, C. K., & Schmidt, P. (1988). A Comparison of Alternative Approaches to the Measurement of Productive Efficiency. In Applications of Modern Production Theory: Efficiency and Productivity (Pp. 3-32) Springer Netherlands.
Lovell, C. K. (1993). Production Frontiers and Productive Efficiency. The Measurement of Productive Efficiency: Techniques and Applications, 3-67.
Meeusen, W., & Van Den Broeck, J. (1988). Efficiency Estimation From Cobb-Douglas Production Functions With Composed Error. International Economic Review, 435-444.
Ogunniyi, L. T., & Ajao, A. O. (2011). Measuring the Technical Efficiency of Maize Production Using Parametric and Non-Parametric Methods in Oyo State, Nigeria. Journal of Environmental Issues and Agriculture in Developing Countries, 3(3), 113.
Olson, J. A., Schmidt, P., & Waldman, D. M. (1980). A Monte Carlo Study of Estimators of Stochastic Frontier Production Functions. Journal of Econometrics, 13(1), 67-82. DOI: https://doi.org/10.1016/0304-4076(80)90043-3
Pitt, M. M., & Lee, L. F. (1981). The Measurement and Sources of Technical Inefficiency in the Indonesian Weaving Industry. Journal of Development Economics, 9(1), 43-64. DOI: https://doi.org/10.1016/0304-3878(81)90004-3
Reifschneider, D., & Stevenson, R. (1991). Systematic Departures From the Frontier: A Framework for the Analysis of Firm Inefficiency. International Economic Review, 715-723. DOI: https://doi.org/10.2307/2527115
Schmidt, P., & Sickles, R. C. (1984). Production Frontiers and Panel Data. Journal of Business & Economic Statistics, 2(4), 367-374.
Trans,S V. H., Coelli, T., & Fleming, E. (1993). Analysis of the Technical Efficiency Of State Rubber Farms in Vietnam. Agricultural Economics, 9(3), 183-201. DOI: https://doi.org/10.1111/j.1574-0862.1993.tb00267.x
How to Cite
With the licence CC-BY, authors retain the copyright, allowing anyone to download, reuse, re-print, modify, distribute, and/or copy their contribution. The work must be properly attributed to its author.
It is not necessary to ask for further permission from the author or journal board.
This journal provides immediate open access to its content on the principle that making research freely available to the public supports a greater global exchange of knowledge.