Profit efficiency among rice producers in Eastern and Northern Uganda

Abstract

Uganda is implementing the Plan for Modernization of Agriculture as one of the ways to eradicate poverty in rural areas. Consequently, it becomes critical to access technical information on strategic commodities, such as rice, which has become a major cash earner. The main objective of this study was to determine profit efficiency in rice production with a view to isolating factors leading to variation in farm-specific inefficiencies. The study relied on cross-sectional data collected in 2001 from three districts (Tororo, Pallisa and Lira) of Eastern and Northern Uganda. Two models, namely a profit translog stochastic frontier model and a firm-specific inefficiency model were used. The parameters were estimated simultaneously, using FRONTIER 4.1 computer programme. Results showed area under rice and capital had a positive influence on profit levels while cost of family labor and “other inputs” had a negative effect. The analysis also showed that all farmers were not operating on the profit frontier and scored a mean profit efficiency of 66 percent with about 70 percent of the farmers scoring at least 61 percent. The efficiency levels at the district level were 75, 70 and 65 percent, respectively for Pallisa , Lira and Tororo, respectively. Further analysis showed rice farmers were losing income due to allocative and technical inefficiency. The established sources of inefficiency were: limited access to extension services, low education, limited non-farm employment opportunities and lack of experience in rice growing. Among these, lack of education, limited access to education and limited access to extension services were the major constraints to increasing profit efficiency in rice enterprises. Based on elasticity estimates, the study also established further that improving efficiency would require expansion of the area under cultivation, which would have the greatest positive impact on profits.