Technical efficiency of the small-scale tea processors in Kenya: a stochastic metafrontier approach

Purpose - Importance of small-scale tea producers in Kenya is not in doubt. They account for 60% of all tea produced in the country, serve about 560,000 tea farmers and employ about 10,000 people directly. However, the subsector faces a myriad of challenges ranging from declining yields and rising costs of production to fluctuating world prices. Thus, it is imperative that the producers entrench efficiency as a critical success factor. This makes it important for the producers to understand their relative performances to inform decisions on improving input use. Congruent with this motivation, this study sought to analyze the technical efficiency (TE) of the country's small-scale tea processors within and across the regions under the management of Kenya Tea Development Authority. Design/methodology/approach - To allow comparison across regions, this study adopted a stochastic metafrontier approach and to be able to decompose inefficiency into persistent and time-varying components, the study adopted regression analysis. Findings - Results showed that the small-scale tea processors operated at a mean TE level of 76% with a technology gap ratio (TGR) of 97%. This implies that the prevailing level of output could be maintained even if inputs were reduced by 24%. Persistent inefficiency could be reduced possibly through rationalization of structural and managerial components of the firms. Research limitations/implications - While it is important to adopt yield-enhancing technologies and innovation, small-scale tea processors have the latitude to improve their earnings through enhanced TE. They can save up to 24% of their input and be able to pay farmers better even with the fluctuating global tea prices. Enhancing TE should be given priority because it is within the control of the individual firms. Originality/value - This is a pioneering study in panel data analysis of TE of small-scale tea processors within and across regions in Kenya.