Variability of Technical Efficiency in High Grown Tea Estates – A Bayesian Approach
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Date
2020
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Publisher
Uva Wellassa University of Sri Lanka
Abstract
This study was carried out to identify the technical efficiency levels of the high grown tea
estates in Sri Lanka. Data were collected from tea estates in the Nanuoya region in
Dimbula planting District covering seven tea estates. Monthly data on green leaf
production, revenue extent of the estate, labour costs, agrochemical costs, and fertilizer
costs were extracted from monthly accounts and progress reports from the year 2005 to
2018 to form a panel data set. To estimate efficiency, stochastic frontier production
functions of Cobb Douglas and Translog forms employed. Two distributional
assumptions were made on the distribution of the firm specific inefficiency term as
exponential and half-normal. Econometric estimation used a Bayesian framework with a
non-informative Jeffrey’s before estimate the posterior distribution. Results indicated that
the Cobb-Douglas stochastic frontier with an exponentially distributed inefficiency term
with random effect was the best fit. Technical efficiency was estimated for each tea estate
assuming the time variation of efficiency cannot be seen in the sample estates. Results
further indicated that there is a positive and significant impact on the monthly green leaf
production by the revenue extent, labour, agrochemical, and fertilizer costs. The average
technical efficiency level estimated was 86.9% and the minimum level is 66.2%. This
shows that on average, in the high grown tea estates, a 13.1% increase in the production
can be obtained without increasing the cost of production. Further, the highest impact on
the green leaf production comes from the extent and therefore, estates should consider
utilizing the abandoned tea lands to increase the production. Besides, it is prudent for the
estates to look into the reasons for inefficiency and correct them so that they can increase
their profitability in these hard times that most estates are running at a loss.
Keywords: Bayesian analysis, Stochastic frontier analysis, Tea estates, Technical
efficiency
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Keywords
Agriculture, Tea Technology, Tea Industrial