Abstract

This paper estimates technical inefficiency in milk production of smallholder dairy farmers in the highlands of Ethiopia and identified factors associated with the observed inefficiency using a stochastic frontier production function approach. The analysis utilizes a cross-section data collected from 1,277 farm households. The result indicates a mean technical efficiency of 55%, suggesting a sizeable technical inefficiency in milk production. The result further shows that household wealth, education level and access to markets as well as institutions are the main drivers of technical efficiency in dairy production. Evidently, by improving smallholder access to market and institutions as well as investing on adult education can bring considerable gain in milk production.

Key words: Stochastic frontier production function, technical inefficiency, smallholders, milk production, Ethiopia.