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Efficiency and Total Factor Productivity Growth in Indian Dairy Sector

Listed author(s):
  • Ohlan, Ramphul

This paper assesses the total factor productivity (TFP) growth and efficiency levels in the Indian dairy processing industry using the Tornqvist index and data envelopment analysis (DEA) models over the period 1980-2008. We utilize a different empirical approach and extend the data sets. To examine the nature of scale inefficiency, nonincreasing returns to scale DEA frontier is used. Our results suggest that total factor productivity in the Indian dairy processing industry has grown significantly. An average technical efficiency level of 72% which implies approximately a 38% inefficiency level is observed from the study. The decomposition of TFP growth indicates that growth is driven more by technical efficiency changes than by scale efficiency. Highest input slacks are observed for working capital. We note that a devaluation in terms of real effective exchange rate, profitability, export and import penetration and research stock play a significant role in explaining the productivity growth in the Indian dairy industry. The non-increasing returns to scale DEA frontier analysis suggests that on an average scale inefficiency is due to increasing returns to scale. Finally, it is noticed that in India, a high volume of milk does not reach to milk processing plants. It is suggested that for efficient utilization of existing processing capacity in dairy plants, a systematic investment is needed in logistics of raw milk collection and infrastructure development. The European model may be used as a benchmark in strengthening milk farmers for increasing farm size and building own processing capacity.

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Article provided by Humboldt-Universität zu Berlin in its journal Quarterly Journal of International Agriculture.

Volume (Year): 52 (No.1)
Issue (Month): ()

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Handle: RePEc:ags:qjiage:155486
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  1. Atkins, P. J., 1988. "Rejoinder : India's dairy development and Operation Flood," Food Policy, Elsevier, vol. 13(3), pages 305-312, August.
  2. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  3. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  4. Channing Arndt & Thomas W. Hertel & Paul V. Preckel, 2003. "Bridging the Gap between Partial and Total Factor Productivity Measures Using Directional Distance Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 928-942.
  5. Chand, Satish & Sne, Kunal, 2002. "Trade Liberalization and Productivity Growth: Evidence from Indian Manufacturing," Review of Development Economics, Wiley Blackwell, vol. 6(1), pages 120-132, February.
  6. Kurosawa, Kazukiyo, 1975. "An aggregate index for the analysis of productivity and profitability," Omega, Elsevier, vol. 3(2), pages 157-168, April.
  7. Eldor, Dan & Sudit, Ephraim F, 1981. "Productivity-based financial net income analysis," Omega, Elsevier, vol. 9(6), pages 605-611.
  8. Doornbos, Martin & van Stuijvenberg, Pieter & Terhal, Piet, 1987. "Operation flood: impacts and issues," Food Policy, Elsevier, vol. 12(4), pages 376-383, November.
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