Analysis Of Profit Efficiency Of Kilombero Paddy-Rice Farmers Using Warehouse Receipt System

ABSTRACT

A Warehouse Receipt System (WRS) is important in a paddy value chain because the commodity requires storage before it reaches consumers. Furthermore, a WRS may enhance speed of transactions and lower costs along the supply chain. However, little is known about the overall profit efficiency of paddy-rice farmers using warehouses. This study investigates the profit of the farmers in Kilombero District by examining the role of WRS on profit. In this study, a stochastic profit frontier and inefficiency effects model was employed. The findings show rice farmers using WRS are efficient than those who are not. The mean level of efficiency for paddy-rice farming was 44.5 percent which implied that an estimated 55.5 percent of the profit is lost due to a combination of both technical and allocative inefficiency in the paddy-rice production. The efficiency differences were explained largely by the cost of transport, storage, shelling and by the distance from farmers’ household to the nearest warehouse. Major result is that, there is no significant difference in technical efficiency between users and non-users of WRS. The study concludes that there are potential opportunities for increasing profit from paddy-rice production by smallholder farmers in Kilombero by using WRS as the business model. This would be achieved by addressing constraints that face farmer organizations linked to WRS in the District. It is therefore recommended that through collective bulking, transport and storage costs could be reduced to make WRS more efficient in Kilombero. Moreover, potential stakeholders such as government should put in place initiatives which will improve availability of credit, affordable farm inputs and reduce transaction costs through WRS. Lastly, WRS should be implemented with high transparency involving all current potential stakeholders particularly farmers.