ECONOMIC EFFICIENCY OF MILK PRODUCTION IN DISTRICT PESHAWER: A STOCHASTIC FRONTIER APPROACH

This study examines the economic efficiency of milk production in district Peshawar during 2009 with a view to examine the productive efficiency of milk. Data were collected from 100 farmers’ selected by using multistage sampling technique and analyzed using descriptive statistics, stochastic frontier production and cost function models. The return to scale (RTS) for the production function revealed that the farmers operated in the irrational zone (stage I) of the production surface having RTS of 1.074. The result of the analysis indicate that presence of technical inefficiency and allocative inefficiency 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 allocative efficiencies within the farmers. The estimated gamma parameter (γ ) for production function was 0.851, indicating that about 85% of the variation in the output of milk among the farmers was due to differences in their technical efficiencies while the estimated gamma parameter (γ ) of model for the cost function was 0.781 indicating that about 78% of the variation in the total cost of production among the farmers was due to the presence of allocative inefficiency. The result also show that rising age would lead to a decline in the efficiency means, and recommended that Government policy should focus on ways to attract and encourage young people who are agile and aggressive in Dairy business.