*Senior Lecturer, Department of Business Management, Madawalabu University, Ethiopia
**Research Scholar, Department of Commerce and Management Studies, Andhra University, Visakhapatnam, India
Online published on 20 June, 2013.
Ethiopia is implementing the plan for modernizing agriculture and eradicating poverty as one of ways to tackle poverty in both rural and urban areas. Consequently, it necessitates to access technical information on strategic cash crops such as coffee, which is the major cash earner for the farmers and the nation at large. The main objective of this study was to evaluate and analyze the profit efficiency of wheat producing and marketing farmers. The research used cross sectional data collected from one district namely Hora boka district of south east oromya regional state of Ethiopia. The data used both quantitative and qualitative paradigms. Apart from this; the paper employed two econometric models of Stochastic Profit frontier Model and Firm specific inefficiency models. The parameters were estimated simultaneously using FROTIER4.1 and STATA 9 softwares. In the research both primary and secondary data were used and more of primary data have been given priority as the model requires primary data.
The result showed area/land under Wheat and cost of hired labor had positive impact on profit levels while cost of family labor and capital were found to have negative influence on profitability. The analysis reveals that firms were not operating at profit frontier and scored a mean profit efficiency of 71 and it implies there a 29%profit loss due to firm specific and institutional variables. Further analysis a gamma value of 0.38 shows that wheat farmers are not operating at frontier level and it implies that they are lagging behind the maximum (frontier) by 38%.
Wheat farmers are losing income due to allocative and technical inefficiency. The established source of inefficiency variables were found limited access to credit extension worker lack of storage after harvest, education level of the farmers and the major determinants were access to extension service, lack of formal education and storage facilities. In conclusion wheat producing and marketing farmers were not operating at profit frontier level and profit inefficiency was observed due to major determinants of lack of formal education, credit access, house hold size, credit availability and lack of extension service from agriculture employees or experts.
profit efficiency, Profit Frontier, Price, determinants, profit inefficiency
