Measuring the extent of technical inefficiency in Nepalese agriculture using SDF and DEA models

Abstract

Alleviation of poverty is a central issue in Nepal. Given the limited stock of land, and the infant/unorganised manufacturing sector, increased demand for food has to be satisfied by improving production efficiency. This paper examines how this could be achieved. An SDF model and DEA model identify the existence of a high degree of technical inefficiency in Nepalese agricultural production system, suggesting that there is a substantial prospect of increasing agricultural productivity using the existing level of inputs and resources more efficiently. Among the three farm sizes in the data set, medium size farmers achieve a higher technical efficiency than large and small farm sizes, suggesting that productive efficiency can be increased with the encouragement of creating medium size holdings. The observed decreasing returns to scale also implies that productivity gains could be achieved by breaking up of large farms into small family farms. The technical inefficiency model suggests the potential for shifting production frontier upwards by providing ownership of land, increasing farmers’ education, and knowledge and increasing land quality including irrigation facilities.