This study measures the level of technical efficiency of smallholder cow milk producers using stochastic production approach of Cobb-Douglas production form and identified the possible cause for inefficiency in cow milk production using Tobit regression model. The data collected from 177 sample household randomly selected from pastoral and agropastoral Kebeles of Yabelo district. The result indicated the mean technical efficiency of cow milk producers of 71.42%. This means if producers are producing in fully efficient way, they can save on average 28.56% of their current input to produce their current output or increase their current milk output by 28.56% without additional inputs requirement. The gamma parameter, â„½, was found to be 0.70 showing 70% of the deviation of actual output from potential output was due to technical inefficiency. Among the five inputs used, milk output was positively and significantly the function of labor, grazing land, and hay forage. The result of Tobit regression model shows that family size, size of livestock holding, extension contact, distance to veterinary clinic, distance to water positively and significantly contributed to inefficiency while age and education level of household head negatively and significantly affecting inefficiency of milk producers. Evidently intervention on access to water source, veterinary clinic, education, family planning and productivity oriented livestock holding will improve technical efficiency of cow milk producer of the study area.
Keywords: Technical efficiency, stochastic production approach, Tobit regression, Yabello district.