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Milk Supply Chain and Efficiency of Smallholder Dairy Producers in Pakistan

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  • Abid A. Burki

    (LUMS)

  • Mushtaq A. Khan
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    Abstract

    Many developing countries are re-orienting their production and marketing systems by linking local agri-producers with organized supply chain networks and supermarkets to meet increasing consumer demands. However, the existing literature is silent on the effects of such integration on relative inefficiency of smallholder producers. This paper analyzes the effects of such supply chains using data from a natural experiment in the dairy sector of Pakistan. We study the impact of rural milk supply chain, known as milk district, on smallholder efficiency of commercial dairy producers by employing stochastic production frontier and technical inefficiency effects model using survey data of 800 dairy households. While location of dairy households in our sample is exogenously determined, building of milk supply chain indeed decreases technical inefficiency. We detect stronger power of milk district in further reducing technical inefficiency if the farms are located in remote areas, or if their size is relatively large. The advice to policy makers from these results conforms to the standard economic view that market competition leads to decreased levels of technical inefficiency of smallholder producers.

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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 22252.

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    Date of creation: Jan 2008
    Date of revision:
    Handle: RePEc:eab:microe:22252

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    Related research

    Keywords: supply chain; Production frontiers; Dairy efficiency; Food policy;

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    References

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    1. Sartorius, Kurt & Kirsten, Johann, 2007. "A framework to facilitate institutional arrangements for smallholder supply in developing countries: An agribusiness perspective," Food Policy, Elsevier, vol. 32(5-6), pages 640-655.
    2. Reifschneider, David & Stevenson, Rodney, 1991. "Systematic Departures from the Frontier: A Framework for the Analysis of Firm Inefficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 715-23, August.
    3. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
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    6. Sherlund, Shane M. & Barrett, Christopher B. & Adesina, Akinwumi A., 2002. "Smallholder technical efficiency controlling for environmental production conditions," Journal of Development Economics, Elsevier, vol. 69(1), pages 85-101, October.
    7. Stanton, Julie V., 2000. "The Role Of Agribusiness In Development: Replacing The Diminished Role Of The Government In Raising Rural Incomes," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 18(2).
    8. Reardon, Thomas & Barrett, Christopher B., 2000. "Agroindustrialization, globalization, and international development: An overview of issues, patterns, and determinants," Agricultural Economics, Blackwell, vol. 23(3), pages 195-205, September.
    9. Hamish R. Gow & Johan F. M. Swinnen, 2001. "Private Enforcement Capital and Contract Enforcement in Transition Economies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 686-690.
    10. C. Dolan & J. Humphrey, 2000. "Governance and Trade in Fresh Vegetables: The Impact of UK Supermarkets on the African Horticulture Industry," Journal of Development Studies, Taylor & Francis Journals, vol. 37(2), pages 147-176.
    11. Gonzalez, Maria A & Lopez, Rigoberto A, 2007. "Political Violence and Farm Household Efficiency in Colombia," Economic Development and Cultural Change, University of Chicago Press, vol. 55(2), pages 367-92, January.
    12. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    13. Kumbhakar, Subal C & Ghosh, Soumendra & McGuckin, J Thomas, 1991. "A Generalized Production Frontier Approach for Estimating Determinants of Inefficiency in U.S. Dairy Farms," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 279-86, July.
    14. Gorton, Matthew & Dumitrashko, Mikhail & White, John, 2006. "Overcoming supply chain failure in the agri-food sector: A case study from Moldova," Food Policy, Elsevier, vol. 31(1), pages 90-103, February.
    15. Dries, Liesbeth & Swinnen, Johan F. M., 2004. "Foreign Direct Investment, Vertical Integration, and Local Suppliers: Evidence from the Polish Dairy Sector," World Development, Elsevier, vol. 32(9), pages 1525-1544, September.
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    Cited by:
    1. Sana Sadaf & Khalid Riaz, 2012. "Does Access to Modern Marketing Channels Improve Dairy Enterprises’ Efficiency? A Case Study of Punjab, Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 17(1), pages 63-82, Jan-June.

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