Input use inefficiencies in the production of sugar cane in Central Negros Area, Philippines : an application of data envelopment analysis

Abstract

This research attempts to identify sources of input use inefficiency for sugar cane production in the Central Negros area, The Philippines. Non-parametric Data Envelopment Analysis was used to determine the relative technical, scale, overall technical, allocative and economic efficiencies of individual farms which use the same inputs and produce the same raw material (cane) and output (sugar). Under a specification of variable returns to scale (VRS), the mean pure technical, scale, overall technical, allocative and economic efficiency indices were 0.7580, 0.9884, 0.7298, 0.7941 and 0.6025. lnput use differences between the purely technical efficient and inefficient farms is statistically different for area, seeds and labour inputs. There was no significant variation in the use of fertiliser and power inputs. For the overall technically efficient and inefficient farms, use of seeds and NPK fertiliser were statistically different. Apart from the lower amount of seeds, fertiliser and power used, the larger profit obtained by the economically efficient farms was due to the lower price paid for each input except labour. The productive efficiency of small, medium and large farms were also determined. Small farms appeared to be economically inefficient compared to the large ones while medium and large farms appeared to be equally economically efficient. Analysis of input use differences among farm size class shows that the higher input usage by the large farms tends to increase the quantity produced and with the low price of inputs, generates a larger profit per hectare. The higher input prices faced by the small farmers tends to reduce the amount of input used thus giving a lower profit. Thus, part of the allocative efficiency differences between the farm size groups may be attributed to the differences in the input price, resulting from market power.