The Technical Efficiency Analysis of Rice Farming in Districts of South Borneo, Indonesia

Abstract

The technical efficiency is meant as the ability of a firm to produce maximum output given a set of inputs and available production technology. A firm that had production does not reach maximum level is supposed to be technically inefficient. This research aimed to assess the technical efficiency performance of rice farming in the Sub-District of Cerbon, the District of Barito Kuala and the Sub-Disrict of Aluh-aluh, District of Banjar by employing an econometric model of the stochastic frontier production function. The error structure of stochastic frontier production model made up of two independent components. One is a general random error and the other is an error which assumed to account for technical inefficiency in production. The method of maximum likelihood estimation (MLE) was applied to estimate parameters of the model which were then used to count the maximum level of output possible to produce by firms given a set of inputs. The technical efficiency index, expressed by TE index, 0 ≤ TE ≤ 1, was measured as the ratio between actual output and assumed the maximum level of output possible to produce. The results showed an average index of TE rice farming in the Sub-District of Cerbon, the District of Barito Kuala and the Sub-District of Aluh-aluh, District of Banjar was 0.87 indicating the performance of production was relatively good. However, there was 3.33% of all the rice farming considered technically inefficient. Such results imply that some treatments may be set to consolidate production managerial aspects in order to improve the technical efficiency of production.