TECHNICAL EFFIEIENCY OF COMMERCIAL DAIRY FARMS; THE CASE OF SULULTA DISTRICT, OROMIA REGIONAL STATE OF ETHIOPIA

Abstract

The study was conducted in Sululta district of Oromia Special Zone Surrounding Finfinne with specific objectives of estimating the technical efficiency of commercial dairy farms in the district and identifying factors associated with technical inefficiency. A total of 46 sample commercial dairy farms from six kebeles of the district were interviewed to collect the data. The study used both primary and secondary data. The study examined the technical efficiency of 46 commercial dairy farms in Sululta district by using a stochastic frontier production function approach. The study utilized cross-sectional data collected during 2015/16 production season. The result indicated that the dairy farm’s mean technical efficiency of was 69%, suggesting sizeable technical inefficiency in milk production. The study further indicated that there was a significant inefficiency in milk production in the study area. The relative performance of each farm to the average milk production in the study area ranged from a minimum of 0.40% to the maximum of 0.90%, implying technical efficiency in milk production in the study area could be increased through better use of existing resources, given the current level of technology. The empirical result also showed that the variable with the highest effect on production is the number of lactating cows in the farm followed by herd costs, wealth (capital), and farm size and feed costs. Contrary to this, overhead cost affected TE negatively. It was found that a unit increase in overhead cost would result in a 0.164 unit reduction in milk production. With regard to the inefficiency model, the study revealed the negative coefficient of breeding method, feeding method, milking method; housing system and experience implying that these variables affect the level of efficiency positively. Of these variables, milking method and housing system found to be insignificant. On the contrary, the positive sign of milking frequency shows that these variables will affect the efficiency level negatively and significantly.