Economic Efficiency in the Tea Estate Sector: A Case Study from Dimbula Tea Region
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Date
2020
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Publisher
Uva Wellassa University of Sri Lanka
Abstract
Being the main agricultural export crop for around 150 years, tea contributes to the Sri
Lankan economy in a significant manner. In the recent past, Sri Lanka’s tea production
and exports show a declining trend. Making matters worse, the average price has fallen
below the average cost of production causing low profits. Amidst these, the tea estate
sector faces many additional challenges in the form of the high cost of production,
scarcity of labor, and maintenance issues. However, despite having the aforementioned
constraints, some estates perform well while others are not. Hence, this study aims to
analyse variability in the economic efficiency and determinants of revenue using a
stochastic revenue frontier. To estimate the revenue function, panel data were collected
from seven tea estates in the Dimbula region, which were selected by the purposively
based on the availability of data and the access for the required data. Green leaf amount,
Net Sale Average (NSA), labor days, chemical cost, and fertilizer cost were extracted
from estate monthly accounts from 2005 to 2018. To estimate the stochastic revenue
frontier, Battese, and Coelli model (1988) was used to capture the firm specific time
invariant inefficiency. Results showed a mature area extent, NSA and labor days has a
positive significant impact on revenue. The largest impact on revenue is given by the
increase in extent as expected. A 1% increase in extent increases revenue by 1.4%.
Similarly, a 1% increase in NSA can increase the revenue by 0.76% and a similar increase
in labor can increase the revenue by 0.07%. Selected tea estates in the Dimbula region
have a mean efficiency of 84%, which implies that still efficiency can be improved by
16% on average. Even though the mean is 84%, the maximum is 96.92% and the
minimum is 68% showing that the inefficiency range is 31.97% to 3.08%. Therefore, it is
clear that some estates have not achieved even the mean level of efficiency and a
considerable amount of potential revenue is lost due to inefficiency.
Keywords: Economic efficiency, Revenue function, Stochastic frontier, Tea estate sector
Description
Keywords
Agriculture, Agriculture Economic, Tea Industrial