Productive efficiency of tea industry: A stochastic frontier approach

Abstract

In an economy where recourses are scarce and opportunities for a new technology are lacking, studies will be able to show the possibility of raising productivity by improving the industry’s efficiency. This study attempts to measure the status of technical efficiency of tea-producing industry for panel data in Bangladesh using the stochastic frontier production function, incorporating technical inefficiency effect model. It was observed that Translog Production Function is more preferable than Cobb-Douglas Production Function. The study estimates that the average technical efficiency of tea producing industries in Bangladesh is 59%. Therefore, the results indicated that there is a great potential exists for
tea industry to further increase the value added by 41% using the available input, technology and efficiency improvement, thereby reducing the cost of production. The study identifies that the mean efficiency of tea industries for value added vary among the regions and year-wise mean efficiency seems to be unstable during the study period and therefore, continued efforts to update technologies and equipment are required in pursuit of efficiency in tea industry.