Economic efficiency of dairy farmers participating in dairy market hubs in Tanga and Morogoro Regions, Tanzania

Abstract

The regular supply of reliable quality milk may call for a hub approach where dairy services are clustered around a milk buyer under some form of contractual agreement. However, empirical evidence on the economic efficiency of hub participating farmers is limited. The objective of this study is to determine the economic efficiency of dairy farmers participating in dairy market hubs (DMHs). The study uses secondary data collected from 384 smallholder dairy farmers in Tanga and Morogoro regions and employs stochastic frontier translog cost model to estimate the level of economic efficiency among smallholder dairy farmers participating in DMHs. Results indicate that economic efficiency index ranged from 0.003-0.999 with a mean of 0.932 points implying that the sampled farmers were close to being fully economically efficient in the allocation of resources for producing a given level of milk output. Key factors indirectly related to cost inefficiency were education level, age, hub membership, and farmer location. These results indicate that new entrants especially the youths need to be encouraged to rear dairy cows. In addition, there is a need to provide farmers with basic information through trainings on profitable dairying, better technology and practices so as to improve their knowledge and skills.

Keywords: Dairy market hub, economic efficiency, smallholder, stochastic frontier