IUP Publications Online
Home About IUP Magazines Journals Books Archives
     
Recommend    |    Subscriber Services    |    Feedback    |     Subscribe Online
 
-->
The IUP Journal of Applied Economics
Technical Efficiency and Its Determinants: A Stochastic Frontier Analysis of Sugar Mills in Uttar Pradesh
:
:
:
:
:
:
:
:
:
 
 
 
 
 
 

This paper disaggregates and explores the components of efficiency that contribute to the change in output, scale of production and technical efficiency of sugar mills in Uttar Pradesh. The efficiency concept defines the maximum level of output that can be obtained by using the same level of inputs in the production of a firm or industry. The investigation of inefficiency effect is obviously useful for the growth and development of sugar mills. To measure the efficiency level and its determinants of sugar mills operating in Uttar Pradesh by applying Stochastic Frontier Approach (SFA), data of 115 sugar mills for the year 2011-12 was collected. It is found that the public limited company is most efficient, while the public corporations are least efficient. However, the next best performing mills belong to individual proprietors. In terms of ownership, the state and central government (jointly) owned and wholly owned private sugar mills are found to be more efficient than others. Further, the sugar millsí years of operation has positive relationship with efficiency, but does not contribute significantly. High efficiency is associated with privately owned sugar mills. There is no difference between efficiency levels location-wise. It has been found that sugar mills are working at constant returns to scale, and the efficiency level can be changed by changing the scale. The technical changes would help the decision makers to realize the strengths and weaknesses that contribute to the growth and development of sugar mills.

 
 
 

Sugarcane is among the most valuable crops and is the raw material for the entire sugar industry. In India, sugar industry is the second largest agro-based industry after cotton and textile industries which provide direct employment to 5 million and indirect employment to 55 million skilled and unskilled workers (Shrivastava et al., 2011; and Solomon, 2011 and 2014). About 4.5 crore farmers are engaged in sugarcane cultivation in India. Sugar mills (cooperative, private, and public) have been instrumental in initiating a number of entrepreneurial activities in rural India. The development and adoption of new production technologies can improve productive efficiency. However, it is more important to utilize the existing technology in the best possible manner in order to enhance the efficiency level. Measures of productivity, its growth and sources for the sugar industry of India play a significant role in policy development. Productivity growth can be divided into three components: technical change, scale effects, and changes in the degree of technical efficiency (Coelli et al., 2005).

Technical change means progress in technology not only physically in the form of improved machinery but also in the innovations in the knowledge base. Scale effects, on the other hand, relate to economies in production. If there are increasing economies of scale, it indicates that the production of additional outputs will require a less than proportional increase in inputs. Improvements in the degree of technical efficiency arise from situations where resources can be used more efficiently by applying practices from the present stock of knowledge. It has been well recognized by the industry experts that the dismal performance of sugar industry is the result of both internal and external environmental factors. The external factors are primarily uncontrollable from the point of view of the management (like decreasing area under sugarcane cultivation, tight government regulations in pricing and distribution of sugar, rainfall deficit, etc.) and their effect is almost uniform on the overall performance of the industry. However, the internal factors are largely manageable in nature (like low level of capacity utilization, inefficient use of inputs, labor unrest, and managerial under performance). The effect on sugar mills varies from one mill to another mill. The present study is undertaken to analyze the effects of external factors on the growth and performance of sugar mills in Uttar Pradesh.

 
 
 

Applied Economics Jouranl,Technical Efficiency and Its Determinants, Magnitude of stock market returns, A Stochastic Frontier Analysis,Change in output, Scale of production and Technical efficiency of sugar mills .