Efficiency Evaluation of Small Holders Palm Oil Production in Edo State, Nigeria

Abstract

This study evaluates the efficiency of palm oil production in the Edo State of Nigeria. Primary data were collected using a set of structured questionnaire from one hundred and ten (110) smallholders' palm oil producers which were selected using multistage sampling techniques. The stochastic frontier production and cost functions model were used to predict the firm level technical and economic efficiencies respectively. The results of the Stochastic Frontier Production Function analysis indicated that the major factors that influenced the output of palm oil production in the study area were quantity of Fresh Fruit Bunch, labour and water. From the result of the inefficiency model, the major factors which influenced the technical efficiency of the respondents were; gender, level of education and years of experience. The return to scale (RTS) yields 0.188 which indicates a positive decreasing return to scale and that the palm oil production in the study area was in stage II of the production.The technical efficiency of palm oil producers ranges from 0.65 to 0.95 with a mean efficiency of 0.86, with majority of the respondents (63.3%) having technical efficiency above 0.94. The economic efficiency analysis of palm oil producers revealed that there was presence of cost inefficiency effect in palm oil production as confirmed by the significance gamma value of 1.000. The mean technical, allocative and economic efficiency of 0.855 0.883 and 0.753 respectively were obtained from the data analysis, indicating that the palm oil producers were relatively efficient in allocating their limited resources. The palm oil producers are yet to achieve their best. This had been confirmed by the presence of technical inefficiency in the estimated models. It is therefore, evident from this study that technical efficiency (TE) of the producer could be improved substantially.