Cost Efficiency of NERICA Producing Households in Ghana: A Modified Non-neutral Stochastic Frontier Analysis

Abstract

Aim: To investigate cost efficiency and its determinants on New Rice for Africa (NERICA) farms in Ghana whilst accounting for the non-usage of fertilizer and herbicides by some farmers. Study Design: Cross sectional. Place and Duration of Study: Kpando, Hohoe and Kadjebi Districts in the Volta Region of Ghana in the 2010/2011 cropping season. Methodology: Single-stage maximum likelihood estimation of a modified Cobb-Douglas stochastic cost frontier and inefficiency model. The inefficiency model is extended to also account for the interactive effect of some farm specific factors on efficiency and uses a cross-sectional data on 159 farm households. Results: The results reveal that the cost function monotonically increases in all the input prices and output. The scale economies analysis indicates that economies of scale prevail in the production of NERICA rice in the study area. The combined effects of farm specific factors and some interactions were found to have significant influence on cost efficiency. Estimated mean cost efficiency is 107% indicating that on average NERICA farmers incur costs about 7% above the minimum obtainable cost. Level of education is found to improve cost efficiency. Conclusion: On the average NERICA farmers are fairly cost efficient and expanding their current scale of production will result in a decrease in per unit cost of output. Education programs designed for uneducated farmers should be introduced. The youth who are more educated should be encouraged to venture into NERICA farming. Farmers in remote districts should be provided with agricultural information and also given ready access to inputs such as fertilizer and seed.