Comparative Analysis of Economic Efficiency in Smallholder Milk Production systems in UASIN GISHU County of Kenya

Abstract

In Uasin Gishu County the rapidly declining household land sizes are a pre- requisite to increased intensification in dairy production from free grazing, to semi-zero grazing and zero grazing. Although the three dairy production pathways are used by farmers in Uasin Gishu County, it has not been established which one of them would be comparatively competitive to enhance commercialization process and lead to attractive returns to smallholders investing in milk production. The objectives of this study were to determine, under different production methods: technical and economic efficiency of smallholder milk production; determinants of technical and economic efficiency of smallholder milk production; and gross margin and profit of smallholder milk production. A sample size of 246 smallholder dairy farmers was selected in Uasin Gishu County using stratified random sampling method. Using both primary and secondary data, technical and economic efficiencies were evaluated utilizing Cobb-Douglas stochastic frontier production function and their detenninants using censored regression model. The gross margin and profit were calculated to determine profitability of milk production. The results of the analysis indicate that presence of technical and economic inefficiencies had effects in milk production as depicted by the significant estimated gamma coefficient of each model, the generalized likelihood ratio test and the predicted technical and economic efficiencies within the dairy farms. Both technical and economic efficiency increased with the level of intensification of milk production. Mean technical efficiency scores were 0.54, 0.57 and 0.81 for free grazing, semi-zero grazing and zero-grazing respectively. The average economic efficiency scores for free grazing, semi-zero grazing and zero grazing systems were 0.43, 0.51 and 0.69 respectively. The maximum likelihood estimates of milk production were an increasing function of cost of feeds and equipment in the three production systems with statistical significance of 5%. The determinants of economic efficiency included gender, land size, distance to markets, education, and group membership. The gross margin and profit per liter of milk increased with the level of intensification due to the higher feed and labour costs. There is need for dairy farmers to increase the level of intensification in milk production to enhance technical and economic efficiency.