Final Proposal
Final Proposal
RESEARCHE PROPOSAL
PREPARD BY ID NO
1, Hiwot Desalegn........................................3097/12
2, Zeritu Gashaw..........................................4043/12
3, Misa Metku...............................................3414/12
4, Hayat Mohammod....................................3074 /12
5, Serkalem Tesfay.......................................3601/12
Submitted to Mr .
December2015 E.C
WOLLO, ETHIOPIA
I
ACRONMYS AND ABBREVIATIONS
AE Allocative Efficiency
COLS Corrected Ordinary Least Squares
CSA Central Statistical Agency
DEA Data Envelopment Analysis
EE Economic Efficiency
FAO Food and Agriculture Organization
GDP Gross Domestic Product
Ha Hectare
Kg Kilogram
LR Likelihood Ratio
ME Man Equivalent
MLE Maximum Likelihood Estimation
NPS Nitrogen, Phosphorous and Sulphur
OLS Ordinal Least Square
QT Quintal
TE Technical Efficiency
TLU Tropical Livestock Unit
UNDP United Nations Development Programme
WFP World Food Programme
II
ABSTRACT
Ethiopia, increasing population pressure and low levels of agricultural productivity have
aggravated the food insecurity situation by widening the gap between demand for and
supply of food. Increasing productivity and efficiency in crop production could be taken
an important step towards attaining food security. The objective of this study will to
estimates the levels of technical, allocative and economic efficiencies of smallholder
wheat producers; and to identify factors affecting efficiency of smallholder farmers in
wheat production in Jamma district, Ethiopia.
III
ACKNOWLEDGEMENT
First of all we will like to great thanks give to almighty our God he will help us in every
aspects of our life. Next we will like to express our heart felt gratitude to our advisor
(instructor) Abrham M for his unreserved advice and invaluable comments through the
whole process until the paper are finalized. Thirdly we will like to thanks Business and
Economics College of WOLLO UNIVERSITY for giving us this opportunity to prepare a
research proposal on Economics. And we will also like to thanks the staff members of
South Wollo Zone Agricultural Office for their excellent collaboration.
IV
TABELE CONTENT
CONTENT PAGE
ABSTRACT......................................................................................................................i
KEY WORDS..................................................................................................i
ACKNOWLEDGEMENT..............................................................................ii
CHAPTER ONE..............................................................................6
1. INTRODUCTION.......................................................................................6
1.1 Background of the study .........................................................................................6
CHAPTER TWO............................................................................ 10
2. LITERATURE REVIEW.......................................................................... 10
2.1 Definition of Efficency...............................................................................................10
CHAPTER THREE........................................................................ 28
3. RESEARCH METHOD AND METHODOLOGY..................................28
3.1 The Research Design..................................................................................................28
REFERENCE..................................................................................32
VI
CHAPTER ONE
1. INTRODUCTION
7
amalgamation of modern technologies with improved level of efficiency (Kinde,2005). In
countries like Ethiopia (having capital constraint), it is worthwhile to benefit from
increasing productivity through improving resource use efficiency.
In sub-Saharan Africa, Ethiopia is the second largest producer of wheat, following South
Africa. Wheat is one of the major staple and strategic food security crop in Ethiopia. It is
the second most consumed cereal crop in Ethiopia next to maize. It has multipurpose uses
in making various human foods, such as bread, biscuits, cakes, sandwich, etc. Besides,
wheat straw is commonly used as a roof thatching material and as a feed for animals
(Omer, 2015).
In Amhara region, the total area covered by wheat was 898,455.57 hectare produced by
2.21 million smallholders; the total production was 26.64 million quintals; and average
productivity was 29.65qt/ha(CSA,2017).
Therefore, this study will intended to estimate levels of efficiency and to identify
factors affecting efficiency levels of smallholder wheat producers in the study area.
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eight percent of this crop is produced by resource-poor farmers. So, to meet the domestic
needs of the country, increasing production and productivity of the wheat crop is needed
and it may be achieved through improved crop management, particularly use of high
yielding and disease resistant varieties coupled with improving the existing level of
farmers efficiency.
Efficient production is the basis for achieving overall food security and poverty reduction
objectives particularly in major food crops producing potential areas of the country
(Tolesa et al.,2014). However, farmers are discouraged to produce more because of
inefficient agricultural systems and differences in efficiency of production (Kifle et al.,
2017). When there is inefficiency; attempts to introduce new technology may not result in
the expected impact since the existing knowledge is not efficiently utilized.
The presence of inefficiency not only limits the gains from the existing resources, it also
hinders the benefits that could arise from the use of improved inputs. Hence,
improvement in the level of efficiency will increase productivity by enabling farmers to
produce the maximum possible output from a given level of inputs with the existing level
of technology (Geta et al., 2013; Mesay et al., 2013; Sisay et al., 2015).
Most of the empirical studies in Ethiopia show that there was a variation in the level
efficiency of smallholder farmers in wheat production (Fikadu and Bezabih, 2008; Mesay
et al.,2013; Solomon, 2012; Awol, 2014; Tolesa et al., 2014; Kaleb and Negatu, 2016;
Hassen, 2016; Getahun and Geta, 2016). According to the results of these studies the
main sources of variation was; farm size, livestock holding, land fragmentation,
education, participation in off/non-farm activities, access to credit, family size, extension
contacts and poor infrastructures, among the others. However, those factors are not
equally important and similar in all places at all times. A critical factor in one place at a
certain time may not necessarily be a significant factor in other places even in the same
place after some time.
Many researchers, in different sectors, have done many performance evaluation studies in
Ethiopia. However, the majority of farm efficiency studies are limited to technical
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efficiency (Fekadu and Bezabih, 2008; Mesay et al., 2013; Hassen, 2016; Kaleb and
Negatu, 2016;Assefa,2016; Getahun and Geta, 2016). But, focusing only on technical
efficiency (TE) understates the benefits that could be derived by producers from
improvements in overall performance. Unlike technical efficiency, this studies will
conducted on economic efficiency (EE) of wheat are limited (Solomon,2012; Awol,
2014).
The general objective of this study will to assess economic efficiency of smallholder
wheat producers in Jamma district, of South Wollo zone.
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The findings of the study will help the concerned body of the study area to be aware of
the economic efficiency of smallholder farmers in the study area. Since the determinants
of economic efficiency of wheat production of smallholder farmers in Jamma district
were investigated, the above-mentioned bodies can easily identify the potentially
effective intervention areas which can play a crucial role in their success.
The study will focus on assessing economic efficiency of smallholder farmers in wheat
production by using data from one district and identifying factors that affect efficiency of
smallholder farmers. It was conducted using a cross-sectional data which only reflects
circumstances in a given year and may be affected by the specific climate of the year as
agriculture in the country is dependent on weather condition
CHAPTER TWO
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2. LITERATURE REVIEW
2.1 Definitions of Efficiency
Efficiency is a term importantly used in production economics, is defined as the degree to
which a production process reflects “best practice”, either in physical sense(“technicaleffi
ciency”) or in an economic sense (“allocative efficiency”).
The first theories and empirical findings on efficiency of a production
unit appeared in1957, with the Solow(macroeconomic approach) and Farrell
(microeconomic approach)studies.In particular, Farrell (1957)following the works of Deb
reu and Koopmans, 1951involves new insights into two important
issues: how to define efficiency and productivity and how to calculate
the benchmark technology and efficiency measures. He Farrell(1957)
proposed that the Efficiency of a firm consisted of three components: technical,
allocative and economic efficiencies.
2.2.1 Technical Efficiency (TE):
According to the work of Farrell (1957), technical efficiency isdefined as the achievemen
t of the maximum potential output from given amounts of inputsunder a given technology
, taking into account physical production relationships. Following N’Gbo (1991) et Atkin
son et Cornwell (1994) studies, we can consider that a production unitis effective technic
ally if, from the inputs it possesses, it produces the maximum of possibleoutputs or if, to
produce an outputs given quantity, it uses the smallest possible quantities of outputs.
2.2.2 Allocative Efficiency (AE):
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Allocative efficiency refers to the ability to choose optimuminput levels for given factor p
rices. In other words, the allocative efficiency shows whether theuse of different proporti
ons of production factors guarantees the attainment of maximum production with a partic
ular market price (Farrell 1957). Allocative inefficiency arises whenfactors of production
are used in proportion that does not minimize the cost of producing a
given level of output
2.2.3 Economic Efficiency (EE):
Economic efficiency combines both the technical and allocativeefficiency. It occurs whe
a firm chooses resources and enterprises in such a way to attain
economic optimum (Adesina and Djato, 1997). Further many more individuals definedec
onomic efficiency at different time. Koppet al.(1982) defines economic efficiency as thec
apacity of a firm to produce a predetermined quantity of output at minimum cost for a giv
enlevel of technology. Again, BravoUreta and Pinheiro (1997) defined economic efficien
cy asthe capacity of a firm to produce a predetermined quantity of output at least cost for
given thelevel of technology and is made up of allocative and technical efficiency.
The efficiency of a farmer is its ability to produce the greatest amount of output possible
from a fixed amount of inputs. Another way of putting this is to say that an efficient
farmer is one that given a state of technical know-how, can produce a given quantity of
goods by using the least quantity of inputs possible (Kopp, 1981). Productive efficiency
consists of technical and allocative efficiency. Technical efficiency is derived from the
production function which reflects the ability of the firm to maximize output for a given
set of resource inputs.
According to Koopmans (1951) a producer is technically efficient if, and only if, it is
impossible to produce more output without producing less of some other output or using
more of some input. Technical efficiency of a producer is a comparison between
observed and optimal values of its outputs and inputs. It refers to the ability to avoid
13
wastage either by producing as much output as technology and input usage allow or by
using as little input as required by technology and output production. Technical efficiency
has, therefore, both aninput conserving and output promoting argument.
It is assumed that technical efficiency lies between zero and one, if TE = 1 implies that
the firm is producing on its production frontier and is said to be technically efficient. 1–
TE is therefore the largest proportional reduction in input that can be achieved in the
production of the output. Alternatively, it can be interpreted as the largest percentage cost
saving that can be achieved by moving the firm towards the frontier isoquant through
radial rescaling of all inputs (Chavas & Aliber, 1993).
This would be represented by the firms operating more closely to the existing frontier. It
is thus evident that productivity growth may be achieved through either technological
progress or efficiency improvement, and that the policies required to address these two
issues are likely to be quite different. Production technology is commonly modelled by
means of production function, which in the scalar out put case specifies the maximum
output obtainable from an input vector. The degree to which the actual output of a
production unit approaches sits maximum is the technical efficiency of production.
Productivity is the quantity of a given output of a firm per unit of input. Technical
efficiency (that part of efficiency which explains the physical performance of a firm)
measures the relative ability of a firm to get the maximum possible output at given input
or set of inputs. Technically efficient firms are those firms that are operating on the
production frontier that represents the maximum output attainable from each input level
(Coelli, 1995).
The concept of efficiency is considered with the relative performance of processes used
in transforming given inputs in to output. Farrell (1957) identified at least two types of
efficiency. These are technical and allocative efficiencies.
According to (Farrell & Fieldhouse, 1962), allocative efficiency is related to the ability of
a farmer to choose its input in a cost minimizing way. It involves the selection of an input
mix that allocates factors to their highest valued uses and thus introduces the opportunity
cost of factor inputs to the measurement of productive efficiency. AE reflects the ability
of the firm to use the inputs in optimal proportions given their respective prices and the
14
production technology. It is assumed that, 0 < AE < 1. Following the same line of
reasoning, 1 – AE measures the maximal proportion of cost the technical efficient firm
can save by behaving ina cost minimizing way.
Technical efficiency and allocative efficiency are then combined to give economic
efficiency, which is referred to as overall efficiency (T. Coelli et al., 2002). It is assumed
that 0 < EE < 1. Therefore EE = 1 implies that it is both technically and allocatively
efficient. Alternatively, [1–EE] measures the proportional reduction in cost that the
producer can achieve by becoming technically and allocatively efficient. The distinction
between technical and allocative efficiency is further explained using two approaches
input-oriented and output oriented approaches.
CHAPTER THREE
The study was carried out in Jamma district. It is located in the northeastern part of
Amhara National Regional State, South Wollo Zone, Ethiopia, lying between 10°23′0″
and 10°27′0″N latitude and between 39°07′0″and 39°24′0″E longitude. The district has an
altitude that ranges from 1600 to 2776 m above sea level. The district is bordered on the
southeast by Qechene River which separates it from North Shewa Zone, on the west by
Kelala, on the north by Legahida, on the northeast by Wore Ilu, on the south by Mida, on
the east by Gera Mider and Keya Gebrieal. The district capital town, Degolo, is about
260 km away from Addis Ababa and 110 km away from the zonal city of South Wollo
Zone, Dessie
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3.2. Type of Data and Sources
Primary data are those data that are gathered for a specific purpose or for a specific
research project by effort of researchers. Primary data are more accurate and reliable
compared to secondary data.
The main source of the study will both primary and secondary data source. Primary data
will collected through interviewing, while secondary data will collecte from financial
reports and budget document.
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agro ecologies of the district, weyina dega was selected purposively due to the major
wheat production part of the district. In the second stage, out of the total weyina dega
kebeles, three kebeles were selected by simple random sampling. In the third stage, 149
sample wheat-producing farmers were selected using simple random sampling technique
from each selected kebeles based on probability proportion to size sampling technique.
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3.8. Budget Schedule
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