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Estimation of Technical Efficiency and It's Determinants in the Tea Small Holding Sector in the Mid Country Wet Zone of Sri Lanka

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  • Basnayake, B.M.J.K.
  • Gunaratne, L.H.P.

Abstract

Sri Lanka is the world leader in made tea production and the small holding sector dominates national production by accounting for 60% of the island's tea production. However, given the high cost of production, there is a belief that it is very difficult to increase profitability without increasing costly inputs such as labour. With this background, in this study technical efficiency of the tea small holdings sector in the Mid Country Wet Zone of Sri Lanka was estimated in order to identify the potential to increase production without incurring any additional costs for inputs. The sources of inefficiency and the robustness of measured technical efficiency in various functional specifications was also investigated. The primary data collected during the period September - January 2001 relevant to sixty small holder tea producers in the Mid-country Wet Zone was used for the study. Maximum likelihood estimates of the stochastic frontier model were estimated for green leaf yield as a function of land extent, family labour, hired labour, fertilizer, chemicals, and dolomite, using Cobb-Douglas and translog models. The determinants of technical efficiency such as age of farmer, experience, education, occupation type of crop (VP/Seedling) and type of clone were investigated, following the Battese and Coelli (1995) specification. According to the Cobb-Douglas specification, extent of land, family labour, hired labour, fertilizer and dolomite showed significant effects on yield. The coefficients for land, family labour, hired labour and fertilizer had positive values of 1.11, 0.027, 0.067 0.029 and 0.004 respectively. The mean technical efficiency of the tea small holdings sector in the Mid Country Wet Zone was found to be 64.60 per cent. The result for the inefficiency model indicates that age of farmer, education, occupation, type of crop (VP or seedling) and type of clone have significant effects on efficiency. The coefficients for age, education, occupation and type of crop showed negative values. However contrary to expectations, type of clone and experience showed positive values. The estimation with the translog model yielded different technical efficiencies, which indicates the fact that technical efficiency estimations are highly sensitive to the functional form specified.

Suggested Citation

  • Basnayake, B.M.J.K. & Gunaratne, L.H.P., 2002. "Estimation of Technical Efficiency and It's Determinants in the Tea Small Holding Sector in the Mid Country Wet Zone of Sri Lanka," Sri Lankan Journal of Agricultural Economics, Sri Lanka Agricultural Economics Association (SAEA), vol. 4, pages 1-15.
    • Handle: RePEc:ags:saeasj:205930
    DOI: 10.22004/ag.econ.205930
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    References listed on IDEAS

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    1. Tim J. Coelli, 1995. "Recent Developments In Frontier Modelling And Efficiency Measurement," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 39(3), pages 219-245, December.
    2. 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 325-332.
    3. 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.
    4. Richmond, J, 1974. "Estimating the Efficiency of Production," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(2), pages 515-521, June.
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    1. Msuya, Elibariki & Ashimogo, Gasper, 2005. "Estimation of Technical Efficiency in Tanzanian Sugarcane Production: A Case Study of Mtibwa Sugar Estate Outgrowers Scheme," MPRA Paper 3747, University Library of Munich, Germany.
    2. Suranjan Priyanath, Hunuwala Malawarage & Premaratne, S.P. & Yoosuf, Amina & Maurice, D., 2018. "Technical Efficiency for Tea Smallholder Farmers under UTZ Certification System in Sri Lanka: A Stochastic Frontier Approach," MPRA Paper 89683, University Library of Munich, Germany.
    3. Herath, Deepananda & Weersink, Alfons, 2009. "From Plantations to Smallholder Production: The Role of Policy in the Reorganization of the Sri Lankan Tea Sector," World Development, Elsevier, vol. 37(11), pages 1759-1772, November.
    4. Asefa, Shumet, 2011. "Analysis of technical efficiency of crop producing smallholder farmers in Tigray,Ethiopia," MPRA Paper 40461, University Library of Munich, Germany, revised 19 Sep 2012.
    5. Yonas T. Bahta & Henry Jordaan & Gunda Sabastain, 2020. "Agricultural Management Practices and Factors Affecting Technical Efficiency in Zimbabwe Maize Farming," Agriculture, MDPI, vol. 10(3), pages 1-14, March.
    6. Karambu Kiende Gatimbu & Maurice Juma Ogada & Nancy L. M. Budambula, 2020. "Environmental efficiency of small-scale tea processors in Kenya: an inverse data envelopment analysis (DEA) approach," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 22(4), pages 3333-3345, April.
    7. Mignouna, D.B. & Mutabazi, K.D.S. & Senkondo, E.M. & Manyong, Victor M., 2010. "Adoption of a New Maize and Production Efficiency in Western Kenya," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96160, African Association of Agricultural Economists (AAAE).

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