Technical Efficiency of Smallholder Dairy Farmers in the Central Ethiopian Highlands

Despite having the second largest livestock population in Africa and favorable climate, the contribution of the livestock, especially the dairy sector to the Ethiopian economy is minimal. The per capita consumption of dairy products of 16 liters is one of the lowest in the world. With increasing income and urbanization, the demand for dairy products is expected to increase. A number of studies have examined the potential of the dairy sector to satisfy existing as well as future demand for dairy products. Most of the studies, however, focus on technological constraints such as poor genotype of indigenous animals, tropical animal diseases, availability of feed and other related services and recommend costly technological solutions aimed to alleviate those constraints. Yet there is evidence of inefficiency and significant post harvest losses of milk. We used a Cobb- Douglas stochastic production function to analyze the inefficiencies of a random sample of 74 smallholder dairy farmers in the Central Ethiopian Highlands. Results show that forage and concentrate feed, number of cross breed cows and expenditures on veterinary services are significant determinants of milk output. We also found evidence of systematic inefficiency in dairy production associated with farmers' educational level and livestock training that explains almost 90% of the variation in milk production. The average efficiency score of farmers in the sample is 79%. Thus milk output can be increased on average by 21% with existing technology by training farmers in modern management practices in feeding, calving, milking, storing, processing and marketing.