Journal of Sustainable Development Vol. 2. No.

DETERMINANTS OF TECHNICAL INEFFICIENCY OF FISH FARMS IN OYO STATE,

NIGERIA

AJAO, A. O, AMAO, J. O AND WILLIAMS, S. B

Ladoke Akintola University of Technology, Ogbomoso-Nigeria. Email: dayo_67@hotmail.com

ABSTRACT

Efficiency measurement has been a source of concern for researchers with an aim to
investigate the efficiency levels of farmers engaged in various agricultural practices.
Identifying determinants is a major task in an efficiency analysis, hence, this study
attempts to measure technical efficiency of fish farms and identify its determinants in
Oyo state using stochastic production frontier. Cross-sectional data were collected from
100 randomly selected fish farmers in Ibadan/Ibarapa zone of the state ADP. Technical
efficiency effects are modeled as function of firm specific factors which are classified into
demographic characteristics, farm practices and institutional support information. Water
source, land acquisition, frequency of extension visit and size stocking variable are
positive and significantly affect the technical efficiency. The estimates of sigma square
(19.01) is significantly different from zero indicating a good fit and correctness of the
distributional assumption specified and the variance ratio (  ) which measures the effect
of technical efficiency in the variation of observed output has a value of 0.1. This means
that about 10 percent of the differences between the observed and maximum production
frontier outputs were due to differences in farmers’ levels of technical efficiency and not
related to random variability.

Keywords: Technical efficiency, fish farms, Nigeria

INTRODUCTION:

Agriculture has always been recognized policy maker alike. It is no surprise;

as an important sector in the economy
as it is expected to provide for our large
and rapidly growing population,
employment for the labour and raw
materials for the industries. Agricultural
production has contributed immensely
to the economic development and social
development of any country.
The concept of efficiency is at the core of
economic theory. The theory of
production economics concerned with
optimization and this implies efficiency.
The crucial role of efficiency in
increasing agricultural output has been
widely recognized by researcher and
therefore, that considerable effort has
been devoted to the analysis of the farm
level efficiency in developing countries.
An underlying premise behind much of
this work is that if farmers are not
making efficient use of the existing
technology, their efforts designed to
improve efficiency would be cost
effective than introducing new
technologies as a means of increasing
agricultural outputs (Bravo-ureta and
Everson, 1994).
The issue of determining the pattern
and the efficiency of resource use in
traditional farming arises in the context

33

of formulating development strategies
designed not only to raise the
productivity of resources already
committed to the farming but also to
ensure that the newly created resources
in the agricultural development efforts
are allocated to areas and for enterprises
in which their productivities are higher
(Awoyemi, et al, 2003)
In recent years, there has been a
growing concern for farm level
efficiency and the question of how to
measure it. Awoyemi, (2000) gave the
following reasons for measuring
efficiency:
i. Measuring efficiency
important because this is the first
step in a process that leads to
substantial resource saving with
its implicit implications for both
policy formulation and farm
management.
ii. For individual farms, gains in
efficiency are particularly
important in periods of financial
stress similar to what an average
farmer is experiencing as a result
of economic downturn and,
iii. Efficient farms are more likely to
generate higher income and then
stand a better chance of
surviving and prospering.
The term aquaculture, refers to the
rearing of desirable aquatic organisms,
include aquatic animals and plants. The
aquatic animal group comprises all
kinds of fin fish and shell fish, weather
they are herbivorous, carnivorous or
omnivorous. Aquatic plants consist of
various kinds of sea weed and fresh
water algae (Shang, 1981). To be
economical, aquaculture must be
conducted under specific conditions.
The culturist must be able to control
water quality and ensure proper
Journal of Sustainable Development Vol. 2. No. 2
nutrition, promote breeding and protect
fish from disease and predators.
Fish as a source of animal protein has
played an important role in the
nutritional budgets of many nations.
Fish production is becoming more and
more an important source of valuable
protein food. The world food crisis and
the present demand for food are
increasing the demand for fish and
other aquatic organisms which can be
directly consumed or converted to food
for eventual human consumption (Sani
et al, 1999).
is The wider gap between demand and
supply of fish in the dietary intake of
Nigerians call for the urgent study of
technical efficiency in aquaculture to
bridge this gap. Efforts to increase the
output cannot give a desirable result
without efficient use of available
resources. In view of the present need
for an increase in the aquatic production
in Nigeria to meet both the taste and
nutritional need of Nigerians, there is a
need to find out the production
characteristics and some other
management factors affecting the
performance of aquaculture industries.
ANALYTICAL MODEL AND
EMPIRICAL METHODS
Aigner et al. (1977) and Meeusen and
van den Broeck (1977) independently
proposed the estimation of the
stochastic frontier production function.
The specification permits output to be
specified as a function of controllable
factors of production, random noise and
a technical inefficiency term. The
stochastic frontier production function,
thus, has two error terms; one to
account for random effects (e.g.,
measurement errors in the output
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 Journal of Sustainable Development Vol. 2. No. 2
variable, weather conditions, diseases,
etc. and the combined effects of
unobserved/uncontrollable inputs on
production) and another to account for
technical inefficiency in production. The
stochastic frontier production function
can be written as:
Y  f ( X i ;  ) exp(Vi  U i ) …………..(i)
where Yi is the production of the ith
farm, Xi is a vector of inputs used by the
ith farm;  is a vector of unknown
parameters, Vi is a random variable
which is assumed to be independently
and identically distributed (iid) N(0,  v2 )
and independent of the Ui; and Ui is a
random variable that is assumed to
account for technical inefficiency in
production and following Battese and
Coelli (1995) it is assumed to be
independently distributed as truncation
(at zero) of the normal distribution with
mean,  i and variance,
 u2 ( N ( i ,  u2 ) ) , where
 i  Z i ………………………………..(ii)
where Zi is a 1 x c vector of farm-
specific variables that may cause
inefficiency and  is c x 1 vector of
parameters to be estimated. The farm-
specific stochastic production frontier
representing the maximum possible
output (Y*) can be expressed as:
Y *  f ( X i ;  ) exp(Vi ) ……………….(iii)
Equation 1 may be rewritten using
equation 3
Yi  Y * exp( U i )
Thus, technical efficiency of the ith farm,
denoted by TEi , is given by:
Yi
TEi  = exp( U i )
Yi *
In short, the difference between
Y and Y* is embedded in Ui. If Ui = 0,
then Y is equal to Y*. This means
production lies on the stochastic frontier
35
and hence, technically efficient and the
farm obtains its maximum possible
output given the level of inputs. If Ui >
0, production lies below the frontier and
the farm is technically inefficient. The
maximum-likelihood estimates (MLE) of
the parameters of the model defined by
(1) and (2) and the farm-specific TE
defined by (5) are obtained using
FRONTIER Version 4.1 (Coelli, 1994).
The efficiencies are predicted using the
predictor that is based on the
conditional expectation of exp( U i )
(Battese and Coelli, 1993; Coelli, 1994).
In the process, the variance parameters
(  u2 and  v2 ) are expressed as follows:
 2   u2 +  v2
and
 u2
 
2
The value of  ranges from 0 to 1, with
value equal to 1 indicating that all the
deviations from the frontier are due
entirely to technical inefficiency (Coelli
et al. 1998). The use of the generalized
likelihood-ratio test is another way of
testing if technical inefficiency effects
are absent in the model. This is used in
testing the significance of the model just
like the F-test in ordinary least square
computations. It is also used in testing
the functional form of the model (e.g.,
Cobb-Douglas versus transcendental
logarithmic or translog) and is more or
less equivalent to the chow test (Greene,
1993) in ordinary least squares
estimation. The generalized likelihood-
ratio test statistic is defined by:
  2( H 0 )  L( H 1 )
where L(Ho) is the value of the log-
likelihood function of a restricted
frontier model as specified by a null
hypothesis Ho; and L(H1) is the value of
the log-likelihood function under the
alternative hypothesis H1 (i.e.
 Journal of Sustainable Development Vol. 2. No. 2
unrestricted model). The test statistic
(  ) has a  2 or a mixed  2 distribution
with degrees of freedom (df) equal to
the difference between the parameters
involved in H0 and H1.
Study area and data
Oyo State is one of the major
aquaculture zones of Nigeria that is
located in the south western part of the
country. With basically a tropical
climate of 11-39 degree centigrade
(minimum and maximum daily
temperature), the state receives an
average of 120 cubic centimetres per
annum. It can also record a very high
relative humidity of about 70 percent.
The state is divided into four distinct
agricultural development zones:
Ibadan/Ibarapa; Oyo/Iseyin; Saki and
Ogbomoso. Due to high concentration
of fish farmers in Ibadan/Ibarapa zone,
the zone was considered for the study.
In Oyo state, there are five species of
fish: tilapia, Heterotis, Ophocephalus,
Clarias and Carp ssp, but four of the
said spp were found in the study area.
The culture period was between six and
twelve months. In establishing the
sample for the study survey, 100
respondents were randomly selected.
Each of these 100 fish farmers is
Yi   0  1 log X 1   2 log X 2   3 log X 3   4 log X 4  vi  ui
i= 1, 2, 3 and 4
Y = yield
X1= Pond size
X2= Stocking
X3 = Feed
X4 = labour
ui = farm specific technical efficiency related factor
vi = random variable
Farm specific technical efficiency will be obtained using the relationship
TEi = exp (ui)
36
surveyed with respect to output levels
and input use in fish production, as well
as the socio-economic characteristics.
Because some of the fish farms practice
polyculture, the yield is expressed in
total revenue per square meter, data are
collected for pond size, feed, stocking
density and labour. Labour use is
expressed as day/m2, with 1 day being
equal to 8hr of labour; pond size is
measured in square meter; stocking
density is measured in kg of fingerlings
put in the pond; and feed is measured in
Kg. In addition to input-output
information, farm specific factors such
as demographic characteristics, farm
practices and institutional support
information were also collected and
used in the analysis to identify
important characteristics influencing
efficiency of fish production.
Model Specification
The stochastic frontier production
function of the Cobb-Douglas type was
specified for this study. Due to its
advantages over the other functional
forms, it is widely used in the frontier
production function studies (Kalirajan
and Flinn, 1983; Dawson and Lingard
1989). The model used was specified as
 Journal of Sustainable Development Vol. 2. No. 2
RESULTS AND DISCUSSIONS
Estimates of Cobb-Douglas production
for fish are presented in table 1. All the
variables included in the model for the
fish farms had expected signs. Among
the explanatory variables feed had
positive and significant influence on the
production of fish. The coefficient of
feed was 1.29 and it implied that one
percent increase in feed will result in
1.29 percent increase in fish production
keeping other factors constant at their
mean level. Similarly, the coefficient of
Table 1: Estimated Parameters of OLS Estimates for Fish Farms
Variables Parameter
Constant 0
Pond size 1
Stocking 2
Feed 3
Iabour 4
Return to scale
 indicates significance at 1% probability level
The maximum likelihood estimate of the
frontier production function estimates is
shown in table. The estimates of sigma
square (19.01) is significantly different
from zero indicating a good fit and
correctness of the distributional
assumption specified. The variance ratio
(  ) which measures the effect of
technical efficiency in the variation of
observed output has a value of 0.1. This
means that about 10 percent of the
differences between the observed and
maximum production frontier outputs
were due to differences in farmers’
levels of technical efficiency and not
related to random variability. These
factors are under control of the farm and
the influence of which can be reduced to
enhance technical efficiency of the fish
37
pond size, stocking and labour will
result in 5.77, 2. 02 and 4.21 percent
increase in fish production. The
regression coefficients in the Cobb-
Douglas production function are the
production elasticities, and their sum
indicates the return to scale. The
estimate for return to scale for fish farms
are greater than one (2.5) indicating
increa sings return to scale. This showed
that an increase in the use of the selected
explanatory variables would result in
more than proportionate increase in
total production of fish.
Coefficient t – ratio
6.17 4.26
5.76 1.41
2.02 0.88
12.86 3.36*
4.21 1.63
2.5
farmers. With a downward shift in the
constant term, the coefficient of pond
size, stocking density and Iabour
becomes significant along with feed in
the stochastic frontier production
implying that the fish farm size could
use more of Iabour and feed increase the
farm size and stocking density. It was
also observed that the farm specific
technical efficiency varied between 0.04
and 1.00 with mean technical efficiency
of 0.72. Therefore in the short-run, it is
possible to increase fish production in
the study area on an average by 28
percent by adopting the technology
used by best performers. The farm
specific technical efficiency frequency
distribution is shown in table 3, it was
found that about 28 percent of the total
 Journal of Sustainable Development Vol. 2. No. 2

farms are technically efficient and 0.07 efficiency of the respondents.

percent are the least efficient (<0.3). For
policy purposes, it is useful to identify
the sources of this inefficiency which
can be done by investigating the
relationship between the computed TE
and land acquisition, water source,
specific and size stocking. All the
variables included are positive and
significantly affect the technical
Experienced operators were more
technically efficient than the relatively
new operators. Extension contacts is
expected to facilitate technical know
how of fish farms, thus fish farm
manager who have high frequency of
extension services are likely to be more
technically efficient than others.

Table 2 : Estimated Parameter of MLE for the sampled fish farms.

Variables Parameter Coefficient t – ratio

Constant 0 5.9 4.51
Pond size 1 0.6 14.60*
Stocking rate 2 0.2 7.55*
Feed 3 1.3 12.31*
Labour 4 0.4 14.41*

Inefficiency
Constant Z0 1.70 1.65
Extension service Z1 16.92 4.25*
Land acquisition Z2 4.155 6.26*
Experience Z3 15.45 4.79*
Size stocking Z4 8.08 3.83*
Gamma 0.1 7.68*
Likelihood 70.64
LR Test 2.63

*indicates significance at 1 percent

SUMMARY AND CONCLUSION efficiency. This implies that fish

In this study we have estimated the
stochastic production frontier and
predicted farmer-specific technical
efficiencies for a sample of 100 fish
farmers. The results showed that the
potential for improving the production
efficiency of fish farmers is immense, as
substantial numbers of farmers are
operating below 60 percent level of
production can still be increased with
the present levels of inputs by simply
improving farmers’ level of efficiency.
The production efficiency at farm level
depends on a number of institutional
support, demographic characteristics
and farm practice. These factors have
been identified to positively contribute
to improving farmers’ efficiency in the

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 Journal of Sustainable Development Vol. 2. No. 2

study area. This finding should be technical efficiency of fish farmers such
taken with caution as the model used in as market imperfections, cash
this study did not incorporate several constraints and other social factors.
other factors that might influence

Table 3: Frequency Distribution of Technical Efficiency Indices

Technical efficiency interval Frequency Percentage
<0.40 6 7.32
0.41-0.49 2 2.44
0.50-0.59 4 4.88
0.60-0.69 5 6.10
0.70-0.79 7 8.54
0.80-0.89 17 20.73
0.90-0.95 8 9.76
1 33 440.24

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