Cost efficiency estimates of maize production in Nepal: a case study of the Chitwan district

Abstract

This study was carried out to analyze the cost efficiency of maize production in the Chitwan district, Nepal with a view to predict economic efficiencies using stochastic frontier cost function. The primary data were collected from 180 maize farmers representing 12 village development committees (VDCs) including one municipality of the district during May-June 2005 for the cropping year 2004-2005. Among various factors, use of manure accounted the highest share in the production cost followed by labour and tractor costs. The maximum-likelihood (ML) estimates of the parameters revealed that estimated coefficients of cost of tractor, animal power, labour, fertilizer, manure, seed and maize output gave positive coefficients and were significant at 5% level. Further, quantitative estimates obtained from the cost function shows the mean cost efficiency of 1.634 indicating that an average maize farms from the study incurred about 63% costs above the frontier cost-an indication of inefficiency. Also, the significant years of schooling of the household head and maize area in the inefficiency model indicated the positive effect of these factors on cost efficiency of the farms. From the analysis of scale effect among maize farms, it was revealed that the maize farms experienced an increasing return to scale, that is, the output increased more proportionately than the total production cost.

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