TECHNICAL EFFICIENCY IN THE PRODUCTION OF NSUKKA YELLOW PEPPER AMONG RURAL FARMERS IN ENUGU NORTH AGRICULTURAL ZONE, ENUGU STATE, NIGERIA

TECHNICAL EFFICIENCY IN THE PRODUCTION OF NSUKKA YELLOW PEPPER AMONG RURAL FARMERS IN ENUGU NORTH AGRICULTURAL ZONE, ENUGUSTATE, NIGERIA BY UGWU STANLEY IFEANYI REG.. TITLE PAGETECHNICAL

TECHNICAL EFFICIENCY IN THE PRODUCTION OF NSUKKA YELLOW PEPPER AMONG RURAL FARMERS IN ENUGU NORTH AGRICULTURAL ZONE, ENUGU

STATE, NIGERIA

BY

UGWU STANLEY IFEANYI REG NO: PG/MSC/05/40132

A DISSERTATION SUBMITTED TO THE DEPARTMENT OF AGRICULTURAL

ECONOMICS IN THE PARTIAL FULLFILMENT

OF THE REQUIREMENT FOR THE AWARD OF MASTER OF SCIENCE (M.Sc) DEGREE IN AGRICULTURAL ECONOMICS UNIVERSITY OF NIGERIA, NSUKKA

JUNE, 2010

TITLE PAGE

TECHNICAL EFFICIENCY IN THE PRODUCTION OF NSUKKA YELLOW PEPPER AMONG RURAL FARMERS IN ENUGU NORTH AGRICULTURAL ZONE, ENUGU

STATE, NIGERIA

This is to certify that this research work is an original work undertaken by UGWU STANLEYIFEANYI , a Postgraduate Student of the Department of Agricultural Economics withregistration number, PG/M.Sc/05/40132, and has been prepared in accordance with theregulations governing the preparation of project work in the University of Nigeria, Nsukka

-

External Examiner

This work is dedicated to the Almighty God the all-knowing, most merciful and Alpha and

Omega who continues to shower us with unmerited blessings and favour

Glory, honour and adoration belongs to the almighty God for his love , protection,providence, mercies, life which only he gives My thanks goes to my mother for herimmeasurable encouragement and financial support when the going got too tough I alsoremember Arch Odo Everestus odo and family for their encouragement I cannot forget in ahurry my guy, Agada Alfred (Gadosky) for sacrificing his comfort just for his friend to ‘tagalong’

I acknowledge the concerted effort of my supervisor Prof E.C Okorji in thumbingthrough this work ensuring that it is concluded and rightly I owe him heart felt gratitude

Thanks also go to the current Head of Department of Agric Economics University ofNigeria, Nsukka, Prof E.C Nwagbo My gratitude also goes to other Professors in theDepartment, Prof S A N D Chidebelu, Prof E O Arua, Prof C J Arene, Prof N J Nwezeand Prof E C Eboh I have benefited immensely from your vast knowledge

Worthy of mentioning are other lecturers in the department namely: Dr (Mrs) A I.Achike, Dr F U Agbo, Dr A A Enete, Dr C U Okoye, Dr Ben C Okpukpara, Mr P B I.Njepuome, Dr Chukwuone Nnaemeka and other lecturers who have contributed in numerousways to the development of this work

My special thanks go to my dear friends and classmates: Ceejay, Ezea Emma, Ebere,Ojogu, Taofeeq, Charso, Pipi, Mantu Also to my cousin Onyinye who insisted I include hername

I acknowledge the scholars whose works I have cited in this thesis

Ugwu, S.I.

TABLE OF CONTENTS

Cover Page ………i

Certification Page……… ii

Dedication……… iii

Acknowledgement……….…….iv

Abstract……… v

List of Tables……… ………viii

Abstract……… ix

CHAPTER ONE INTRODUCTION 1

1.2 Backgroung of the study 1

1.3 Problem Statement 2

1.4 Objectives of the Study 3

1.5 Hypotheses of the Study 4

1.6 Justification for the Study 4

CHAPTER TWO 2.0 LITERATURE REVIEW 5

2.1 Agronomy of pepper 5

2.2 Sustainable Resource Use and food Security 6

2.3 Global Agricultural Resource Use Trend 7

2.4 Agricultural Research and Resource Productivity 8

2.5 Measures of Efficiency 9

2.5.1 Technical Efficiency 10

2.5.2 Allocative Efficiency 10

2.5.3 Pareto efficiency 11

2.6 Related Studies on Efficiency 11

2.7 Theoretical Framework………… 12

CHAPTER THREE 3.0 METHOLOGY 15

3.1 Study Area 15

3.2 Sampling procedure 15

3.3 Method of data Collection 16

3.4 Data analysis 16

3.5 Model Specification 16

3.5.2 Technical Efficiency Model 17

3.6 Student’s T-test 17

CHAPTER FOUR 4.0 RESULTS AND DISCUSSIONS 19

4.1 Socio-economic Characteristics of the Respondents 19

4.1.1 Gender of the Respondents 19

4.1.2 Age Distribution of the Respondents 20

4.1.3 Marital Status of the Respondents 20

4.1.4 Years of formal Education 21

4.1.5 Family Size of the respondents 22

4.1.6 Major Occupation of the Respondents 22

4.1.7 Farm income level of the Respondents 22

4.1.8 Ownership of Farmland 23

4.2 Forms of Farming systems 23

4.3 Production ofNsukka Yellow Pepper in the Study Area 24

4.4 Land Area Cultivated of Nsukka yellow Pepper by the Respondents………… 25

4.5 Influence of socio-economic charateristics of the Respondents on their technical efficiency 26

4.6 The Efficeincy of Resource use 28

4.7 Distribution of the Technical Efficiency indices of the Respondents 29

CHAPTER FIVE 5.0 SUMMARY, CONCLUSION AND RECOMMENDATION 30

5.1 Summary 30

5.2 Conclusion 31

5.3 Recommendations 32

REFERENCES 33

using Cobd-Douglas frontier function .26

4.6 Maximum Likelihood Estimates of Stochastic Frontier Production

Function of Nsukka Yellow Pepper Production 28

4.7 Distribution of Technical Effiency Indices of the Respodents in

the Study Area……….… 29

This study determines the technical efficiency level and socioeconomic characteristics thatinfluence the technical efficiency of yellow pepper farmers Stochastic Frontier function thatincorporated inefficiency factors was estimated using a Maximum Likelihood technique toprovide estimates of technical efficiency and its determinants using data obtained from 60Nsukka Yellow pepper farmers in Nsukka, Enugu State, Nigeria The result shows that the meantechnical efficiency was 70 percent indicating the need for improvement in efficiency level foradditional 30 percent The result also indicates that the respondents are operating in the rationalstage (stage II) of production as indicated by the return to scale of 0.797 The empirical findingsalso show that age, number of years spent in formal education, family size and farmingexperience are important socio-economic determinants of the respondents’ level of efficiency.Farming experience had positive influence on the respondents’ level of efficiency It wasrecommended that rural women should be effectively mobilized for full participation in theproduction of Nsukka yellow pepper through the use of extension agents and community leaders,provision of farm inputs through establishment of channels that will enable farmer access creditfacilities and review of land use act to give the rural farmers access to land

CHAPTER ONE

INTRODUCTION 1.1 Background of the Study

Small-scale farmers occupy a central position in Nigeria’s agricultural policy (Ajibefunand Abdukadri, 2004) Agricultural activities in Nigeria seem to be shouldered by small-scalefarmers who mostly live in rural communities These farmers are poor and tend to practiceproduction system that may not utilize resources efficiently

Small-scale farmers are constrained by lack of credit, which translates to inadequacy ofworking capital (Kibaara, 2005) This in part brings about the vicious cycle of poverty Thetheory of vicious cycle of poverty tries to explain the reason for poor investment of resources(agricultural), which leads to poor output and the consequent low income However, increment inagricultural output does not depend on heavy investment of agricultural resources To achievepossible optimum agricultural output from a given set of resources, farmers are confronted withthe challenges of increasing the agricultural productivity in an attempt to feed the ever growingpopulation by using resources efficiently

Resources are of paramount importance in agriculture and these include land, labour,capital and management The profitability of an agricultural enterprise hinges on efficientutilization of resources needed and available to such enterprise Clear understanding of resourceuse patterns by farmers and their adjustment to external factors are necessary for increase in theproductivity of agricultural resources (Amaza and Olayemi, 2002) Efficiency of resource usemay be defined as the extent to which a given set of resources are being allocated across uses oractivities in a manner that maximizes whatever value they tend to produce such as output, marketvalue or utility Therefore, the efficiency of a farm as a production unit is how effectively it usesresources for the purpose of profit or output maximization

Rural farmers in Enugu North agricultural zone (Nsukka area) of Enugu State are scale farmers with variety of constraints These constraints include resource availability, resourceallocation and difficulties in controlling resources in production process (Awoke and Okorji,

small-2004) It is expected that these constraints do affect the production of Nsukka yellow pepper inthe area.

Pepper is an important vegetable in most societies and plays a significant role in our

everyday food Today, peppers are grown (Capsicum spp) widely in many countries, Nigeria

inclusive and it forms an integral part of local cuisine It adds flavour, colour and pungency toseveral delicacies The interest in pepper extends to its nutritional and medicinal values in thatpeppers are recognized sources of vitamins C and E and are high in antioxidants Thesecompounds are associated with prevention of cardiovascular disorders, cancers and cataracts Inaddition, it can be used for preservation of cowpea against weevil attack (Echezona, 2006) The varieties of pepper prevalently grown in Nigeria include:

• Cayenne pepper or red pepper – ‘Sombo’ ( Capsicum frutescence)

• ‘Atarodo’ ( Capsicum annum )

• ‘Tatase’ ( Capsicum annum )

• Nsukka Yellow pepper (Capsicum annum)

Nsukka yellow pepper popularly referred to as “Ose Nsukka” owes its name to its

characteristic yellow colour and the area it is popularly grown Nsukka yellow pepper is animportant commercial fruit vegetable Its cultivation forms a major and sometimes the onlyagricultural activity of rural women in Enugu state (Onwubuya et al, 2008)

1.2 Problem Statement

Pepper production in Nigeria has not attracted the same research patronage like thefollowing crop: cassava, cocoa, rice, to mention a few The area, the production and yield dataare difficult to come by Regrettably, Nsukka yellow pepper production is towing the same line.Few or no medium and large scale farmer has invested in it Research interest in it isinsignificant This obviously can be explained by the dearth of records and results from researchfindings to convince the medium and large scale farmers on the need to engage in Nsukka yellowpepper production by a way of elucidating to them the economic viability of such enterprise.This development has culminated in the bulk of its production to be in the hands of small-holderfarmers Small-holder farmers according to Awoke and Okorji, (2004) are farmers whoseproduction capacity falls between 2.5 and 5 hectares per cropping season

The production of Nsukka yellow pepper could be said to have remained in the hands ofsmall-holder rural farmers These farmers like most rural farmers in Nigeria are resource poorand operate on small-scale They hardly use mechanized and other improved agriculturalimplements and so it can be asserted that they still carry out their agricultural activities the

‘traditional ways’ This is in line with Olayemi, (1980) who observed that the kinds and qualities

of resources used in primary production activities in tropical countries are characterized byforms, which tend to give rise to low output This also tends to hide the importance andpopularity of Nsukka yellow pepper production It is one of the major agricultural activities ofrural women in Enugu State (Onwubuya et al, 2008) Again the markets and industrialrequirements are hardly met (NISPRI, 2000) Supply is constrained, thus there is every need toraise productivity of the pepper farmers This can be done through the farmers’ adoption ofimproved technologies or improvement in the efficiency of use agricultural resources or both.However, they are often times left with the choice of improving the level of efficiency because oftheir low rate of adoption of improved technologies due to resource poverty (Idiong, 2007) Thisforegoing informs for the appropriateness of efficient utilization of resources in the production ofNsukka yellow pepper as a strategy for improvement of productivity in the enterprise Therefore,this study seeks to provide answers to the following research questions:

i What are the socio-economic characteristics of yellow pepper farmers in the studyarea?

ii What forms of production systems do the farmers use in the production of Nsukkayellow pepper?

iii Are farmers efficient in their use of labour, land and capital?

iv What influences do socio-economic characteristics of the farmers have on theirproduction efficiency?

1.3 Objectives of the Study

The general objective of the study is to determine the efficiency of resource use in theproduction of yellow pepper among rural farmers in Nsukka area The specific objectives are to:

i assess the socio-economic characteristics of the yellow pepper farmers in the study area

ii assess the production systems employed by the farmers in the production of Nsukkayellow pepper,

iii determine the efficiency of labour, land and capital use in producing Nsukka yellowpepper through the estimation of the responsiveness of the yield to land, labour andcapital,

iv estimate the influence of the farmers’ socio-economic characteristics on the efficiency oftheir production of Nsukka yellow pepper and

v suggest appropriate policies from the empirical results

1.4 Hypotheses of the Study

The following null hypotheses will be tested

1 Ho: the socio-economic characteristics of the yellow pepper farmers have no significantinfluence on the technical efficiency

2 Ho: the use of labour, land and capital have no significant influence on the yield ofyellow pepper

1.5 Justification for the Study

The current situation of Nigeria’s inability to key in on producing pepper for the worldmarket even with the country’s advantage of being able to produce high quality pepper – Nsukkayellow pepper, needs urgent attention The farmers of Nsukka yellow pepper like most farmers inNigeria are rural dwellers and appropriate knowledge of how different resources they employ infarms are utilized becomes imperative This will lead to the farmers’ adjustment of their inputuse and embrace efficient methods of production, which will consequently lead to reduction inamount resources expended during production and improvement in their farm profit will beguaranteed

Evaluation of yellow pepper production will necessitate the understanding of how thefarmers will allocate and use their resources and improve their productivity, consequently theirincome This is important as the country’s agricultural policy objectives include: the increment offood production, increment in the production of agricultural raw materials as inputs for theeconomy, enhancement of incomes of small farmers and households with a view to alleviatingpoverty and promoting rural development/employment (WTO, 2005)

Sound knowledge of utilization of agricultural resources in a manner that will enhancethe output and minimize waste and it will lead to designing of policies that will increase the

farmers’ chances of using resources efficiently The essence of this study is to present empiricalfindings on resource use efficiency of yellow pepper production in Nsukka area and fill the gap

in resource-use literature

CHAPTER TWO 2.0 LITERATURE REVIEW

Literature for this study is presented as follows:

2.1 Agronomy of Pepper.

Peppers are warm season crops originally native of Central and South America.Portuguese traders introduced it to India, Africa and other parts of Asia around 450-500 yearsago (Berke, 2002) They quickly adapted to wide range ecological zones and today, they formintegral part of local delicacies across countries For instance, the Indonesian sambal, the Thaihot and sour soup, the Korean kimchi and even the Indian curry

Botanically, hot peppers mostly referred to as chilies belong to the family, Solanaceae,and are close to the tomato, nightshade, and potato They belong to the genius, Capsicum, whichprobably comes from the latin word, caspa, meaning chest or box, because of its shape (the fruitencloses the seeds very neatly, as the box) (Garzon-Tiznado and Carrillo, 2002)

Peppers are warm season crop and require about the same growing conditions as tomatoand eggplant They are very sensitive to light and grow poorly when the temperatures arebetween 4.4 to 15.60C range Very little fruit set occurs when temperatures are above 320C duringthe day and 150C in the night Fruits that do set when temperature is above 270C are usuallysmall and poorly shaped (Motes, Criswell and Damicone, 2004) Some of the small-fruitedpungent peppers are more tolerant to high temperature fruit set problems than typical Americanbell type peppers However, such conditions are mostly applicable to the peppers grown inAmericas Pepper plants require continuous growth for satisfactory results They are verysensitive to unfavorable weather though, of course, the farmer has little control over the weather.Peppers will often drop their blossoms when temperatures are high and humidity is low Coolweather can also keep the plant from flowering Deep cultivation that cuts the roots causes waterstress on the plant that makes blossoms drop Even a short dry period can cause the sameconditions (Hardin and Baniecki, 1984)

In Nigeria, production of pepper starts with the preparation of the nursery, which requiresgood soil medium (USAID, 2003) The soil should be rich, well drained and free of diseases and

insect pests Its nursery medium must consist of organic manure and topsoil in equal proportions.

In the field, the beds where the seedlings will be transplanted require the application offumigants to kill pests, fungi, weed, etc According USAID (2004), VAPAM is the recommendedfumigant that should be applied at the rate of 1 liter to 20 liters of water per bed of 1 m x 10 m.When used, the soil should be heavily wetted to the depth of 15 cm and covered with palmfronds It is required that the seedling be shaded during the nursery stage to harden them

During harvesting period, the colour is important item of quality therefore fruits should

be harvested when they start to turn yellow or red depending on the variety With good care,

‘tatase’ and ‘atarodo’ can remain productive for two years but ‘sombo’ can last for four years andthe fruit yield is of 3 – 6 tonnes per hectare

2.2 Sustainable Resource Use and Food Security

Sustainable agriculture is a long term approach to agriculture that combines efficientproduction with wise stewardship of the earth’s resources (Ogunsunmi, 2005) For agriculture to

be sustainable, cultural practices should be designed to meet the needs of the present generationwithout compromising those of the future generations (Bossel, 1999) According to him,sustainability is quite complex and has linkages with the economy, environment, demographyand others

Population growth has increased the pressure on naturally endowed resources bringingabout reduction in fallow period (Ajibefun and Abdukadri, 2004) Therefore, there is the need toadopt intensive production practices for increased food production (Van Keulen and Bremen,1990) This is based on suggestion of Hayami and Rutan, (1985) that adjustment of farmingsystems and adoption of new technologies based on more intensive use of land, labour or capitalwill only take place when factor proportions are constrained Maxwell and Wiebe, (1999),reported that resources are critical to food security because they tend to determine the ways inwhich individuals, households and countries gain access to food through production andexchange

Food security according to Madely, (2002) is defined as the availability of food at alltimes, to which people have means of access, that is nutritionally adequate in terms of quantity,quality and is acceptable within the given culture Sen, (1981) is of the opinion that individuals’access to food may come from trade or other means in addition to food production He further

reported that shortfalls in food production are not sufficient cause of hunger in a country Hungerresults from variety of factors which may include changes in income, food prices and inability ofthe country to import the needed food This was also noted by Shapouri and Rosen, (2001) thatdomestic food production is less critical to food security if a country can import required foods

Resources and food security are related in a significant way The engagement ofindividuals in food production leads to their allocation of resulting income along with theirremaining stock of resources to consumption and investment (Maxwell and Wiebe, 1999) InSub-Saharan Africa, consumption is prioritized over investment (World Bank, 1997), whichreflects low saving rates This however may conceal the depletion of natural resources and otherresources important for food security over time Therefore there is a great tendency that pepperfarmers could also be faced with the issue of continued depletion of their farm resources whileless and less are provided for reinvestment into their farms

2.3 Global Agricultural Resource Use Trend

Resource priority changes as economies evolve, in low-income economies; priority istypically given to issues related to the management of natural resources for poverty alleviationand food security (UNEP, 1997) The growth of economies shifts priority to include resourceproblems associated with industrialization, such as air and water quality, and treatment anddisposal of waste

About 11 percent of global land area is considered arable land, ranging from 5 percent inthe Middle East and Northern Africa to 43 percent in South Asia According to Alexandratos andBruisma (1999), agricultural land has increased in recent times at an annual rate of 0.3 percent.This increment comes from expansion of cultivation into marginal lands They further reportedthat the projected increase in agricultural land is only a small portion of total unused land withrain-fed crop potential Houghton, (1994), cautions that land conversion continues at high levels

in some regions and raises concerns about future constraints in those areas

Water is abundant globally but scarce in many regions (UNEP, 1997) Only 7 percentrenewable freshwater is withdrawn from rivers, aquifers world wide each year (World Bank,1992) According to (Rosegrant et al, 1999), rapid growth in water demand in combination withhigh cost of developing new water resources could threaten future growth in food production In

Sub-Saharan Africa, public sector irrigation schemes have been generally expensive to constructand maintain and their performance disappointing (FAO and World Bank, 2001).

The earth’s atmosphere is a critical component of global resources being modified byhuman activities The activities could be in form of emission from burning of fossil fuel, whichleads to global warming and its attendant effects on agricultural productivity However, Darwin,

et al, (1995) is of the opinion that global warming is not expected to constitute a threat to foodproduction on global scale, though some resource poor regions, particularly those in the tropicsmay suffer reduction in food availability and access

The world population reached 6 billion with the highest growth rate in Sub-SaharanAfrica (United Nations, 1999) Conversely, the growth rate has been slowed down by increasedmortality from HIV/AIDS Nevertheless, the bulk of labour force in this region remains inagriculture Poverty and malnutrition are high coupled with low adult literacy (Dasguta, 1993).All these have negative influence on the productivity and tend to cause continuing pressure onnatural resources

2 4 Agricultural Research and Resource Productivity

Agriculture is the principal source of food, livelihood and foreign exchange earner inSub-Saharan Africa (Bandianne and Delgado, 1995) Agricultural production is particularlyimportant component of food security Consequently, agricultural productivity is critical to theability to meet food security and economic development objectives in the face of rapidpopulation growth (Wiebe, 2001)

Presently, the objectives of research in agriculture include, increasing income, improvingfood and nutritional security and protecting the environment of farmers (Philip and Wafula,1997) According to Sys Van Ranset and Debaveye, (1991), these objectives are elusive toachieve because of variation in principal resources of agricultural production which include:

• Natural (climate, vegetation, water, hydrology, land form and soil)

• Human (farm labour, social structure that affect land use patterns and allotment)

• Capital (funds availability both private and national)

Multidisciplinary research by natural and social scientists is necessary in order tounderstand how natural, human and capital resources interact (Philip and Wafula, 1997) in order

to achieve improved resource productivity Climatic factors such as rainfall, temperature and

radiation interact with crop characteristics (Dewit, 1965) Natural science research can determinethe type and amount of farm inputs required for improved agricultural productivity Theutilization of the inputs will depend on the socio-cultural and economic situations of the farmers,prevailing agricultural policies and institutional structures that require research by socialscientists (Evan, 1991).

Technologies have been developed that increase the agricultural productivity especially inthe area of using the benefits of vegetation such as Biological Nitrogen Fixation (BNF),application of green manure, needs for short fallows and biomass transfer (Giller, et al, 1997).The overall knowledge by farmers, of the contributions of vegetation in agriculture andsubsequent adoption or not of these soil fertility improvement strategies are areas of socialscience research (Evan, 1991)

In Africa, research has targeted production of high yielding varieties of exotic crops at theexpense of native varieties (Juma, 1991) The production of such high yielding varieties depends

on the availability of a whole package of inputs such as water, fertilizer, pesticides, etc This inactual sense is not suitable for poor farmers who cannot afford them

Total resource productivity in agriculture is estimated to have grown by an average of 1.3percent annually between 1961 and 1991 for Africa as whole (Lusigi and Thirtle, 1997) Landproductivity rose by an average of 1.9 percent per year between 1980 and mid 1990s while foodproduction grew by 2.4 percent per year (World Bank, 1998) By contrast, labour productivityfell by an average of one percent per year Meanwhile, growth in agricultural productivityappears to be slowing and land degradation has been blamed as contributing factor (Wiebe2006) The interaction between biophysical processes and economic choices are complex, anddata necessary to measure these processes are scarce so estimates of land degradation impact onproductivity vary widely

2.5 Measures of efficiency

Efficiency of a production system is a representation of comparison between observedand optimal values of its output and the inputs used in the production process This takes theform of ratio of observed to the maximum potential output obtainable from a given level of input

or the ratio of minimum potential of observed input required to produce a given level of output

or some combination of the two (www.ojp.usdoj.gov/BJA., 2006) Since the economic rational

behind farmers’ engagement in crop production is for the maximization of his profit or outputthen it is the wish of the farmers to use methods of production that do not waste resources Thefirst step in the analysis of farm in production is to understand the concept of technical andallocative efficiencies (Bronfrenbrenner, et al, 1990).

2.5.1 Technical Efficiency

Technical efficiency measures are the comparisons of maximum observed values ofoutput and its optimal values with a given level of input use In other words, technical inefficientfarm is the farm that produces too little output from a given bundle of inputs According toNwakalobo, (2000), a farmer who is said to be technically efficient produces as much output aspossible from a given set of inputs or if he uses the smallest possible amount of inputs for agiven level output Technical efficiency is thus calculated as follows:

However, several other methods for measuring technical efficiency exist The choice ofmethod depends on the data and the researcher’s philosophical view of importance ofmeasurement error (Forsund,et al, 1980) The various methods calculate technical efficiencyindex (TE score), which measures the distance of the observed firm from a point on theproduction frontier (Brock, et al, 2006) Firms lying on the production frontier are 100 percenttechnically efficient (with TE= 1) and technical inefficiency of the firm increases with thedistance from the production frontier

2.5.2 Allocative Efficiency

Analyses of allocative efficiency usually assume that firms seek to optimize a profitmaximization objective function subject to resource constraints (Ogunsunmi, 2005) Resourcesare said to be efficiently allocated when the marginal product of each resource equals its price.Therefore, profit maximizing entrepreneur will not use a resource beyond the point where theresource adds just as much to his revenue as it adds to the cost This will only mean exchange ofmoney or the same value Allocative efficiency hence, gives direction and magnitude of resourceadjustment

TE =

Actual output Potential output

2.5.3 Pareto Efficiency

Pareto efficiency, which most often is referred to as pareto optimality is a conceptdeveloped by an Italian economist and mathematician by name Vilfredo Fedrerico DamasoPareto (1848 – 1923) This came as result of his analysis of welfare economics It is a usefulcriterion for comparing the outcomes of different economic institutions (Varian, 1996) Aninstitution is said to be pareto-efficient in the way it allocates its resources when such allocationsleaves nobody better –off and or at least nobody worse-off Conversely, it can be said that aneconomic system is inefficient in pareto terms when some people are better-off and others atleast some well-off The illustration of pareto-efficiency can be done with consumers A and B.This argument follows that in a pareto-efficient allocation, the Marginal Rate of Substitution(MRS) of consumer A has to be equal to the MRS of consumer B, that is, the rate at whichconsumer A is willing to exchange one good for the other with, should be equal to the rate atwhich consumer B would be just willing to trade one good for the other The conditionsaccording to Stiegeler and Thomas (1976) are that for the goods, the MRS should be equal to theratio of the prices for the factors of production In determining the pareto optimal conditions, the

points equivalent to efficiency points on the Edgeworth-Bowly box curve are called the pareto optimal points.

2.6 Related Studies on Efficiency of Agricultural Production

Farmers’ adoption of practices to ensure better crop production is dependent on theefficient use of production resources (Amara, et al, 1999) There have been variations inachieving efficient use of resources by farmers owing to various factors Technical factors inempirical studies include the knowledge of farmers on agronomic practices and timeliness ofoperations (Kalirajan, 1990), location factors (Abdulai and Eberlin, 2001), farm type as crop ormixed enterprise and access to irrigation, (Battese, 1992)

Studies in Tigray, northern region of Ethiopia show that short-term land contracting could

be source long term inefficiency of production on continually share cropped plots even if thecontracts are extended on a seasonal basis (Tesfay, et al, 2005) A study by Ajibefun andAbdukadri, (2004) on impact of size on farm operation resource use efficiency in small-scale

farming reveals that resource availability does not translate into efficiency In the study, it wasdiscovered that farmers with less intensive use of land, labour and capital resources are moreefficient in the use of these resources than farmers that use resources intensively.

Ogundari,et al, (2004) in the study of impact of economies of scale and cost efficiency insmall-scale maize production in Nigeria, indicated that the small scale resource poor farmers areefficient in their use of resources and the expansion of their level of production will reduce costper output This is in accordance with results from earlier study that indicate higher relativeefficiency for small farms, (Yotopolous and Lau, 1973)

Alabi and Aruna, (2006) studied the technical efficiency of family poultry production inNiger-Delta, Nigeria It was discovered that inefficiency parameters show age as beingnegatively related to poultry production It further showed that family size, gender, innovationadoption have negative relationship with efficiency of poultry production

A study by Awudu and Huffman, (2000) on economic efficiency of rice farmers innorthern Ghana showed that 29 percent of potential maximum profit was lost due to inefficiency.The study further indicated that higher level of education reduced profit inefficiency

2.7 Theoretical Framework

Farrell, (1957) developed the basis of standard efficiency methodology

The input saving efficiency consists of two components, (i) technical efficiency which reflectsthe ability of firm contracting inputs for a given set of output, (ii) allocative efficiency whichreflects the ability of a firm to use inputs in the optimal proportion, given their respective prices,(Kumar and Gupta, 2004) Economic efficiency (EE) is the overall performance measure and it isequal to the product of technical efficiency and allocative efficiency ( Bronfenbrenner, 1990)

Over the years, Farrell’s methodology has undergone some refinements andimprovements, which consequently resulted in the stochastic frontier model The model has wideacceptance in agricultural economic literature because of its consistency with theory, versatilityand relative ease of estimation (Kibaara, 2005)

The stochastic frontier production function was independently proposed by Aigner,Lovell and Schmidt (1977) and Meeusen and Van den Broeck (1977) The stochastic frontierproduction function often assumes Cobb-Douglas production function with constant returns toscale and constructs a linear production frontier in the input/ output space However, it assumes

that deviation from the frontier (error term) can be split into two components : a symmetricalrandom error with mean zero and efficiency component that takes only positive values from atruncated normal distribution with positive mean (Brock, et al, n.d) The original specificationinvolved a production function specified for cross-sectional data which had an error term thathad two components, one to account for random effects and the other to account for technicalinefficiency (Coelli, 1993).

The frontier function for cross-sectional data can be illustrated with a firm using inputs

(x1, x2, …, xn ) to produce Y Efficiency transformation of inputs into output is characterized by the production function F(x), which shows the maximum output obtainable from various input

vectors The stochastic frontier production function assumes the presence of inefficiency inproduction; hence the function is defined by

Yi = Xi β+ (Vi – Ui) …(1)

Where:

Yi is the production (or logarithm of production) of the i - th firm;

Xi is a K × 1 vector of (transformations of the) input quantities of the i-th firm ;

β is a vector of unknown parameters;

the Vi are random variables which are assumed to be independently identically distributed (iid).

N(0,óv2), and independent of the Ui , which are non-negative random variables which are

assumed to account for technical inefficiency in production and are often assumed to be iid.N(0,óu2)

Furthermore, Battese and Coelli (1992) proposed a stochastic production function for(unbalanced) panel data which has firm effects that are assumed to be distributed as truncatednormal random variables, which are also permitted to vary systematically with time The modelmay be expressed as:

Yit = Xitβ + (Vit – Uit) ,i…,N t=1, , T, …(2)

the Vit are random variables which are assumed to be iid N(0,óv2), and independent of the

Uit = (U exp(-ή(t-T)), where:

The Ui are non-negative random variables which are assumed to account for technical inefficiency in production and are assumed to be iid as truncation at zero of the N(ì,óu2) distribution; ό is a parameter to be estimated; And the panel of data needs not to be complete (i.e.

unbalanced panel data)

CHAPTER THREE 3.0 METHODOLOGY

3.1 Study Area

The study area is Enugu North agricultural zone of Enugu state, Nigeria The area wasformally referred to as Nsukka Agricultural zone but was changed following the change ofnomenclature by Enugu State Agricultural Development Programme (ENADEP) from its formername (ENADEP memo, 2004) The study area comprises of six local government areas out ofthe 17 local government areas of the state The State lies between latitudes 5053’ north and 7025’north and also between longitudes 7053’ east and 7055’ east (Balogun, 2000) The localgovernment areas that make up Enugu North Agricultural zone include: Igbo-Etiti, Igbo-EzeNorth, Igbo-Eze South, Nsukka, Udenu, and Uzo-Uwani The study area shares boundaries withBenue and Kogi States in the North and Anambra State in the west It has a total population of1,228,586 and land area of 2363.461 square kilometers (Federal Republic of Nigeria OfficialGazette, 2007)

The study area is covered by open grassland, with occasional woodlands and clusters ofoil palm trees with seasonal variation of hot and mild cold weather There are two markedseasons, the rainy season and the dry season Rainy season occurs from April to October, whilethe dry season starts from November and ends in March According to, 80 percent of theinhabitants are farmers, yams, oil palm products, taro, corn (maize), rice, and cassava are themain crops with varieties of fruits, vegetables and legumes Ofomata, (1978)

3.2 Sampling Procedure

For the purpose of this study, multi-stage sampling method was employed in selecting therespondents Thus the first stage was to choose three (3) local government areas randomly out ofthe six local government areas that make up Enugu North agricultural zone The second involvedselection of two (2) communities randomly out of each of the three local government areas Itshould be noted that each of the local government areas has no equal number of communities.The third stage was purposive selection of two (2) villages from each of the earlier selectedcommunities The villages were selected based their popularity in the production of Nsukkayellow pepper The list of names of yellow pepper farmers was prepared in each of the twelvevillages through consultation of key informants in the communities Finally, five (5) respondents

(Nsukka yellow pepper farmers) were randomly selected from each of the villages This bringsthe total number of respondents to sixty (60) which constitutes the sample size Enugu NorthAgricultural zone has estimated number of Nsukka yellow pepper farmers to be 400 thus thesample size represents 15% of Nsukka yellow pepper farmers.

3.3 Method of Data collection

The information supplied by the farmers provided the bulk of the primary data It isimportant to note that the data provide useful information as regards the socio-economic status ofthe rural yellow pepper farmers in the study area, the amount of resources used in the productionand the corresponding output This information was collected with the help of two enumerators,who were trained for the administration of the questionnaire

3.4 Analytical Techniques Used

Econometric techniques and descriptive statistics were used in analyzing the datacollected Descriptive statistics were employed in achieving objectives (i) and (ii) which aresocio-economic characteristics of the respondents and the production systems embarked upon bythe farmers respectively Econometric techniques were used in realizing objectives (iii) and (iv)

Descriptive statistics used include frequency distribution, percentages and students t-test.The econometric techniques used include: stochastic frontier production function The stochasticfrontier production function and technical efficiency models were jointly estimated using soft-ware package, FRONTIER 4.1