Determinants of profit efficiency among smallholder beef producers in Botswana Sirak Bahta, International Livestock Research Institute (ILRI) Derek Baker, University of New England ARMIDALE , Australia International Food and Agribusiness Management Association (IFAMA) annual meeting Cape Town, South Africa 16-17 June 2014
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Determinants of profit efficiency among smallholder beef producers in Botswana
Presentation by Sirak Bahta and Derek Baker at the International Food and Agribusiness Management Association (IFAMA) annual meeting, Cape Town, South Africa, 16-17 June 2014.
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Determinants of profit efficiency among smallholder beef producers in Botswana
Sirak Bahta, International Livestock Research Institute (ILRI) Derek Baker, University of New England ARMIDALE , Australia
International Food and Agribusiness Management Association (IFAMA) annual meeting Cape Town, South Africa
16-17 June 2014
Outline
Background
Objective of the study
Literature review
Methodological approach
Results and discussion
Conclusion and policy implications
1
Agriculture in Botswana:
The main source of income and employment in Rural areas (42.6 percent of the total population)
30 percent of the country’s employment
More than 80 percent of the sector’s GDP is from
livestock production
Cattle production is the only source of agricultural exports
Background
2
Cont. Background
(Cont.)
Beef is dominant within the Botswana livestock sector
3
2,247
0
500
1000
1500
2000
2500
3000
3500
'00
0
Commercial
Traditional
Dualistic structure of production, with communal dominating
Background (Cont.)
Cattle population
4
0
0.05
0.1
0.15
0.2
0.25
Sales
Home Slaughter
Purchases
Offtake
BirthsDeaths
GivenAway
Losses
Eradication
Commercial
Traditional
Background (Cont.)
Despite the numerical dominance , productivity is low esp. in
the communal/traditional sector
5
Growing domestic beef demand and on-going shortage of beef for
export:
Beef export quota has been declining sharply (e.g. from 86
percent in 2001 to 34 percent in 2007 (IFPRI, 2013 ))
Problems in production and marketing into export channels • High transaction costs
• Farmers’ preferences for keeping animals to an advanced age
• Lack of understanding of the various markets’ quality requirements
Not clear as to whether beef production is competitive
Studies have relied on household budget analysis and limited
household data
Others have concentrated on productivity of agriculture
Background (Cont.)
6
Objective of the study
To derive a statistical measure of profit efficiency, thus competitiveness, of different herd size smallholder farmers
using a stochastic profit frontier approach
Specifically the study seeks to:
• Identify the determinants of profitability and efficiency drivers
• Measure overall efficiency score of beef producers
• Testing for the effects of farm size on efficiency both within and between size classes
• Come up with policy recommendations to improve competitiveness of beef production 7
Competitiveness relate in one way or another to profitability
Sustained ability to profitably gain and maintain market share (Agriculture Canada, 1991)
• Competitiveness can be measured at three levels,
macro; meso and micro-levels
• “the ability to sell products that meet demand
requirements in terms of price, quality & quantity
and at the same time ensure profits”
Literature review
8
• Productivity and efficiency : often cited as indicators or measures of competitiveness or profitability.
• Measuring efficiency: potential input reduction or potential output increase relative to a reference (Latruffe, 2010).
– Technically defined by non-parametric and parametric methods
Independent variable = Input prices normalized by output price(feed, veterinary and Labor), Fixed costs per beef equivalent (Fixed capital, family labor and Land)
Efficiency drivers: household characteristics (Age, Education, Gender, non-farm income, access to crop farm income) and transaction cost variables (distance to markets, access to agriculture/market information) and location variable (FMD zone)
11
Results and discussion Descriptive statistics
Variables HZ1
(N=238)
HZ2
(N=140)
HZ3
(N=178)
Pooled
(N=556)
F-
statistics
Value of beef Cattle output (Pula
per year) 2,076.4 58,60.1 11,215.8 5,955.0 0.000
Average Beef cattle price (Pula) 1,772.3 2,081.4 2,218.7 1,993.0 0.000
Feed cost (Pula per year) 264.6 782.71 922.18 605.6 0.002
Veterinary cost (Pula per year) 296.0 565.92 1,192.2 650.9 0.000
Paid labour cost (Pula per year) 1,450.5 2,765.83 4,797.8 2,853.3 0.000
Cost of other inputs (Pula per
year) 3,53.9 725.36 1158.0 704.9
Value of fixed capital (Pula) 22,170.9 48,869.9 343,544.6 131,779.5 0.006
Total crop land area (Hectares) 4.9 6.88 7.30 6.19 0.198
Family labour (hours per month) 201.5 226.85 209.17 210.3 0.585
12
Variables HZ1
(N=238)
HZ2
(N=140)
HZ3
(N=178)
Pooled
(N=556)
F-
statistics
Age of household head (Years) 58.9 59.9 60.9 59.8 0.440
• In general the mean efficiency of 0.58 (for the pooled sample) implies that there is a substantial loss of profit due to inefficiency.
• Profits could be increased through reduction in inputs costs and improved access to crop land
• Examination of the influence of scale on profitability yielded mixed results : details of how boundaries are drawn between size classes are important and should be examined in further research
• Presence of inefficiency in the study reminds that production models that assume absolute efficiency could lead to misleading conclusions.
Conclusion and policy implications
17
• Policies to improve farm profit should be directed at
Reducing input prices (encouraging farmers to engage in feed production and extend LACs services to large farmers with efficient control mechanism)
Improving access to crop land
Improving infrastructure such as roads (Currently only 45 percent of farmers have access to roads (IFPRI 2013) and collection points of livestock
Encouraging farmers to engage in crop farming, particularly in feed production