Estimation of Cost Efficiency of Dairy Farms in Kenya's Eastern Central Highlands

Abstract

The objective of this study was to determine the cost efficiency of dairy cow farms in the Eastern Central highlands of Kenya. The data was collected through a cross-sectional survey from 135 farms in the study region.  The sample size was determined using the Fischer's formula. A stochastic frontier cost function was estimated using the maximum likelihood estimation technique. The MLE results revealed that the costs of roughages and labour were the major determinants of dairy farming cost. The farms operated at low economies of scale, mainly because the land size owned averaged only two acres; where mixed crop-livestock farming was practiced. It was revealed that roughages could substitute with either mineral supplements or labour to reduce farming costs. The mean farms cost efficiency index was 4.4% above the frontier cost. Most farms did not make profits. The average cost per farm was Ksh. 551 while the milk revenue was Ksh.365. It was concluded that farmer-cost inefficiency was not the main cause of the high milk production cost. The cost of feeds coupled with the relatively small land sizes owned and the cost of labour were the main challenges facing dairy farming in the study region. It was recommended that policy makers come up with necessary laws and regulations to ensure that the continued land sub-division is reversed and that the cost of dairy farming inputs is reduced. Researchers require establishing the least-cost combination ratio for roughage and labour.