Economic Efficiency Of Milk Production Of Smallholder Dairy Farmers: The Case Of Welmera District In Oromia Region, Ethiopia

Abstract

As Ethiopia is implementing new economic reforms, agriculture, particularly the livestock sector, is positioned to be a major growth area. Even though Ethiopia stands as the first largest livestock populations in Africa, its position in terms of per capita milk availability is very low. This indicated that milk production has to be increased to meet the demands of the fast growing population. This study was conducted to assess the economic efficiency of small holder dairy producer in welmera wereda of Oromia region, Ethiopia. In this study both primary and secondary data source were used. By applying Multi-stage sampling procedures the primary data were collected randomly from 187 small holder dairy farmers, using structured questioner that includes farm production, input usage, and socio economic and institutional factors. The study applies Cob-Douglass stochastic frontier profit function to estimate the economic efficiency of dairy farms using FRONTIER 4.1.software. The result show that feed cost, labor cost, pasture size had negative sign and significant at 1%. The results of economic efficiency analysis shows that small holder dairy farmers achieved on the average 70.1 % profit efficiency. This means that the profit loss or gap was about 29.9% .this shows that the small holder dairy farmers in the District could increase profit by 29.9 % if inefficiencies were eliminated. Experience in dairy production, membership to the cooperative and lactation length were negative and significant at 1% level that reduce profit inefficiency while age, gender, household size, distance to the milk market possess positive and significant relationship that increase profit inefficiency. Therefore to improve farmer profit efficiency, farmers' experience should be strengthened through training, and the government should focus on building farmer milk cooperatives and boosting cooperative membership.