Analysis of Technical Efficiency of the Ethiopian Agro- processing Industry: The Case of Biscuit and Pasta Processing Firms
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Date
2010-10
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Addis Ababa University
Abstract
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.
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Keywords
Agro- processing sector, stochastic production function, and technical efficiency