Analysis of Technical Efficiency of the Ethiopian Agro- processing Industry: The Case of Biscuit and Pasta Processing Firms

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Addis Ababa University


This study aims at determining the level of technical efficiency of the Ethiopian private and public pasta and biscuit industries over time using stochastic frontier production function model. All the parameters of the frontier function and the inefficiency model have been estimated simultaneously using Maximum likelihood estimation. The study considered 15 private and 5 public pasta and biscuit industries for the period of 2004/05-2008/09. The translog functional form with maximum likelihood estimation better explains the production behaviour of private as well as public pasta and biscuit industries. It shows that there is technical efficiency difference among industries in the sector. The mean technical efficiency of public pasta and biscuit industries was 0.12 while that of private industries was also 0.11, showing an increasing trend in both industries. Poor quality of wheat, poor linkage between private industries and state farms and poor technology are the main constraint of the sector. Public industries, slightly speaking, have better efficiency and scale of operation as compared to private industries mainly attributed to the linkage between public wheat firms with public pasta and biscuit industries. External constraints including lack of modern marketing skill, financial resources and lack of sufficient professional food technologist contribute more to the low level of development of the sector. In order to effectively utilize agricultural resource and benefit from this sector, efforts have to be made in improving linkage between state farms with privet companies, working to scale up the production of best quality of wheat(Durum wheat), infrastructure development, technical and skill development and availability of updated marketing information system. The creation of conducive business environment enhances the development of the sector. Keywords: Agro- processing sector, stochastic production function and technical efficiency.



Agro- processing sector, stochastic production function, and technical efficiency