Analysis of profit inefficiency in rice production in Eastern and Northern Uganda
Allocative inefficiency, profit function, stochastic profit function
Rice is among the emerging crops in Uganda that play an important role both as a food and a cash crop. It ranks fourth among the cereal crops in area cultivated, occupying a total of 80 thousand hectares of land with an estimated annual output of 120,000 metric tonnes. The study analyses sources of technical and allocative inefficiency and estimates the magnitude of profit losses and suggests policy interventions. A stochastic profit function and inefficiency function are estimated using cross-sectional data from a sample of 253 households from three districts of Eastern and Northern Uganda. The results show that rice farmers are not operating on the profit frontier. The main causes of inefficiency are firm-specific which include low education and limited access to extension services. These two factors have hampered the attainment of reasonable technical and allocative efficiency. From these results, it is clear that improvement in profit efficiency would require focused programmes to increase access to education and extension services.