Abstract

Haileeyesus Habtegebriel and Bekabil Fufa

This study was conducted to estimate the level and determinants of technical efficiencies of Ethiopian food processing firms using stochastic frontier approach. Two stages stratified sampling technique was used to draw 90 sample firms during the years (2000 - 2006) from a data collected by Central Statistical Authority of Ethiopia. Cobb-Douglas stochastic frontier production function model in combination with a technical inefficiency effects model were employed to study the level and determinants of technical efficiency of the firms in a simultaneous one step estimation procedure. The software used in this study was Frontier 4.1 written by Tim Coelli (1998). The test result indicated that mean technical efficiency of Ethiopian agro – food processing firms is 0.866 indicating that there is a room to improve production of processed foods by 13.4% given the existing level of inputs, price of inputs and technological level. Among the explanatory variables of the technical inefficiency effects model, incentive, capacity utilization, ownership type and age were found to be positive determinants of technical efficiency. Furthermore, it is investigated that there is a parabolic relation between age and technical efficiency. A decrease in the technical efficiency of food processors through the study period was also observed.