Okello et al.

Agricultural and Food Economics (2019) 7:19

https://doi.org/10.1186/s40100-019-0140-x
Agricultural and Food
Economics

RESEARCH Open Access

Farm level allocative efficiency of rice

production in Gulu and Amuru districts,
Northern Uganda
Daniel Micheal Okello1* , Jackline Bonabana-Wabbi2 and Basil Mugonola1

* Correspondence: okelloabua@
gmail.com Abstract
1
Department of Rural Development
and Agribusiness, Faculty of Smallholder farming, predominant in Uganda, is characterized by low productivity for
Agriculture and Environment, Gulu most crops including rice which is gaining prominence as both a food and income
University, P. O. Box 166, Gulu, crop. The low productivity is mostly attributed to allocative inefficiency. Allocative
Uganda
Full list of author information is efficiency (AE) considers farmers’ ability to allocate resources efficiently, by producing
available at the end of the article the maximum possible output at minimum cost. Increasing AE requires an understanding
of the specific sources of inefficiency that vary across farm enterprises, geographically and
temporally. A cross-sectional study was carried out in Gulu and Amuru districts
of Northern Uganda to assess the sources of farm-level allocative inefficiency in
rice production using the stochastic frontier approach. Data were collected from
a random sample of 200 smallholder rice farmers. Results show that the mean
AE was 75%. Household size, distance to trading centre, farm size, number of
crop enterprises, use of hired labour, use of ox-plough, and access to credit had
significant effects on AE. We recommend adoption of technologies such as the
use of ox-ploughs and reallocation of farm resources especially labour.
Keywords: Allocative efficiency, Rice, Stochastic frontier, Uganda

Introduction and motivation for the study

Over 96% of African farmers are smallholders (Kanu et al. 2014). Smallholders’ farming
activities are majorly constrained by family labour and land size (Jayne et al. 2010). For
most smallholders, the main source of production labour is family labour, which is
highly dependent on household size (Kamau et al. 2009). In Uganda, smallholder farm-
ing activities are also constrained by the fact that farmers produce many crops on the
small pieces of land (UBOS 2010). Many authors have also noted that the smallholder
farmers are less productive compared to world standards resulting in lower yields
(FAO 2014; Larson et al. 2014) as compared to other farms elsewhere. Although aver-
age crop yields in Sub-Saharan Africa (SSA) in general and Uganda in particular have
been steadily increasing, they remain the lowest in the world. For instance, with cereal
productivity of just under 1500 kg/ha, SSA has the least cereal crops productivity per
hectare than any other region in the world. In some cases, there has been declining
productivity per unit area. For instance, the productivity of pulses for Uganda posted a
negative growth rate of 1.5% for the period 2000–2010 (FAO 2013).
© The Author(s). 2019 Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International
License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium,
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indicate if changes were made.
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 2 of 19

There is even more variation in crop productivity among the many smallholder
farmers for the different crops within a single country. In the Agriculture Sector Devel-
opment Strategy and Investment Plan of Uganda (MAAIF (2010), it is noted that yields
of most crops in Uganda remain substantially below the levels attained in research sta-
tions. For instance, in a study on rice production in Northern Uganda and South
Sudan, Musebe et al. (2013) reported that NERICA1 4 rice farmers in Northern Uganda
were achieving yield levels of 1042 kg/ha against the potential yield of 4000 kg/ha. This
is only about 25% of the yield potential of NERICA 4. In some cases, yield differences
of up to 80% are reported (van Ittersum et al. 2013). Crop yields are expected to differ
between on-farm and research stations due to differences in the structural settings of
farmers’ farms and research stations; however, such enormous differences cannot be ex-
plained by differences between farm field and research station settings alone (Tittonell
and Giller 2013). According to FAO (2014) and MAAIF (2010), these large disparities are
evident of high levels of inefficiency in terms of farm resource utilization and allocation at
farm level. Norton et al. (2010) noted that wide variations in yields are associated to
natural, socioeconomic, and political causes and rapid population growths that create
challenges of reallocation of productive resources among the different small farms.
While these inefficiencies exist, the role of smallholder agriculture in poverty reduction
and food security cannot be underlooked (Alliance for a Green Revolution in Africa
(AGRA) 2014). According to Valdés and Foster (2010) and Wiggins et al. (2010), agricul-
tural growth which entails increasing agricultural productivity plays an important role in
fighting rural poverty and food insecurity. This is especially true where poverty levels are
high and/or there exists a food security problem such as in Northern Uganda where the
poverty level is greater than the national average. Poverty rates for Northern Uganda were
estimated at over 45% in the 2012/2013 financial year, the highest in the country and
more than twice the national average of about 20% (Hitchen 2016). The need to increase
agricultural productivity has also been highlighted in several policy documents (e.g.
AGRA 2014; FAO 2014; Larson et al. 2014; MAAIF 2010).
In line with the increasing scarcity of land as a major productive resource in agricul-
ture, increasing agricultural productivity faces a new challenge of ensuring that the
increasingly limited resource becomes more and more productive. This is evident by
the declining farm sizes especially in SSA (FAO 2014; Lowder et al. 2015). The World
Bank’s World Development Report of 2008 highlighted that with the increasing scarcity
of land as a result of increasing population, the future of agriculture is ‘intrinsically’ tied
to efficient use of the production resources at our disposal (World Bank 2007). It is
therefore imperative that strategies to increase agricultural productivity in SSA coun-
tries including Uganda be directed towards increasing efficiency of smallholder farming
operations and the efficiency of resource allocation to various enterprises (AGRA 2014;
MAAIF 2010).
To improve efficiency of smallholder farmers, the existing levels of resource alloca-
tion must be known. Although evidence suggests general inefficiency of most small-
holder farms (AGRA 2014; MAAIF 2010), little is known about the exact level of
inefficiency of resource allocation of smallholder farms including those in Northern

1
NERICA is the New Rice for Africa. It is a cultivar group of interspecific hybrid rice developed by the Africa
Rice Center (Somado et al. 2008)
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 3 of 19

Uganda (Dalipagic and Elepu 2014). This is against the backdrop that efficiency of
resource use varies significantly across farms and localities (Norton et al. 2010; Wood
et al. 2016). Understanding resource use efficiency and its predisposing factors is
particularly of high policy relevance for rice, a crop that has recently gained promin-
ence in terms of poverty alleviation and food security households in Northern Uganda.
For instance, Northern Uganda is the second largest producer of rice in the country.
The region also has the highest mean plot size for rice at 0.45 ha per farming household
(UBOS 2010). Efficiency of resource use and its predisposing factors is important for
guiding decision-making and better farm planning. In Vietnam, for instance, Tung
(2013) observed farmers need to change their farm plans and ‘expand their production’
due to the increased efficiency of rice production. This study used the parametric sto-
chastic frontier approach (SFA) to estimate the level of efficiency of resource allocation.
The study also analysed the sources and causes of inefficiency for rice production in
the region. The aim was to fill the gap in literature and contribute to the discussion on
efficiency. The main research question was as follows: what factors are responsible for
the difference in observed and frontier production levels of rice and how do these
factors influence allocative efficiency?
Most studies on efficiency focus on technical efficiency (see, for example, Tung 2013;
Madau et al. 2017; Ahmed and Melesse 2018; Karimov 2014) and profit efficiency
(Hyuha et al. 2007). Technical efficiency looks at the ability of farmers to maximize
output while profit efficiency combines both technical and allocative efficiency but does
not show specific factors responsible for the observed technical or allocative efficiency.
It instead combines the two into profit efficiency. However, in light of the need to pro-
mote smallholder commercialisation, there is an increasing use of purchased inputs
(Sheahan and Barrett 2017). This brings into perspective the other dimensions of effi-
ciency—economic efficiency—which is the ability of farmers to use the least possible
cost in production. This study focused on the allocative efficiency which looks at the
ability of farmers to produce the maximum possible output (technical efficiency) at the
least possible cost (economic efficiency) (Farrell 1957).

Study area, sampling procedure, and data types

The study was carried out in Northern Uganda. According to the Uganda Bureau of
Statistics 2008/2009 census of agriculture, the Northern region had over 900,000 agri-
cultural households constituting 22% of the national agricultural households (UBOS
2010). Specifically, the two districts of Gulu and Amuru were selected for this study.
The two districts have been chosen for two main reasons. Firstly, the two districts have
all name rice to be first priority cash crop (Dalipagic and Elepu 2014), and secondly,
rice productivity in the two districts is still low (Ahmed et al. 2014). The two districts
have a combined population of over 635,000 individuals with a total of over 125,000
households (UBOS 2014) and over 85,000 (70%) agricultural households. The study
adopted a cross-sectional approach. Using structured questionnaires, the study col-
lected data on rice production from a random sample of 200 smallholder rice farmers
in 2 purposively selected districts of Gulu and Amuru in Northern Uganda.
The questionnaire used was designed to contain questions on socioeconomic vari-
ables, on quantities of inputs and outputs for the major agricultural enterprises and
their respective prices, and on factors that can influence farm efficiency. Data collected
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 4 of 19

were for the second production season of 2014 (July to November) and the first pro-
duction season of 2015 (March to June). This was due to the fact that at the time of
data collection, most of the production for the second season of 2015 had not yet been
harvested. Data on resource allocation included information on input requirements and
their total availability. Data were also collected on factors which can potentially affect
allocative efficiency.
Collected data were coded and entered in SPSS and STATA statistical packages.
After entry, the data were cleaned for potential outliers before subjecting them to thor-
ough statistical analysis. The data cleaning process involved conducting preliminary de-
scriptive analysis to identify irregularities and inconsistencies in data entry, which were
correcting by crosschecking on the questionnaires. Outliers were also identified using
the scatter plot, examined and dealt with by using robust techniques. Analysed data are
presented in form of tables and figures as may be applicable.

Analytical methods
The stochastic frontier approach
This study used the stochastic frontier approach (SFA) to estimate allocative efficiency
(AE). This approach has been chosen due to its parametric nature and superiority over
other methods. The SFA was preferred over the non-parametric data envelopment ana-
lysis (DEA) since it uses the method of maximum likelihood that gives more robust re-
sults as opposed to DEA which relies on mathematical programming. Erkoc (2012),
Zhang and Garvey (2008), and (Cullinane et al. 2006) compared the DEA and SFA in
different analysis of efficiency and found a strong correlation between efficiency esti-
mates of the two methods. However, Erkoc (2012) concluded that the SFA is superior
over the DEA where there is high-quality data, while DEA was found to be better than
SFA where there is poor-quality data such as in panel data studies where the researcher
has no control over the quality of the data.
The approach involved estimating the technical efficiency (TE) and economic effi-
ciency (EE) scores for the farming households and using these scores to estimate AE as
a ratio of EE to TE. TE was estimated from the stochastic production function (SPF),
while EE was estimated from the stochastic cost function (SCF). The analytical frame-
work for SPF is specified in Eq. (1):

Y i ¼ F ðX i ; βÞ expεi ð1Þ

i ¼ 1; 2; ……n farms

εi ¼ vi −ui

where Yi is the rice output for the ith farm, Xi is a vector of inputs associated with the
ith farm for the production of rice, and εi is the composite error term which comprises
the random error term vi and the inefficiency parameter ui which is a one-sided error
term that allows actual production to fall below the frontier. In other words, deviation
of any farm from the frontier is a result of random errors and inefficiencies in produc-
tion. Basing on the functional form assumed by the farm, Eq. (1) can be fitted with a
Cobb-Douglas (CD) function, a transcendental function, or a trans-log production
function. In the SPF, both error terms are assumed to be independent of each other
and normally distributed (μ, σ2).
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 5 of 19

Equation (1) can be restated as:

Y i ¼ F ðX i ; βÞ expðvi −ui Þ ð2Þ

TE would then be estimated as in Eq. (3):

Yi
TEi ¼ ð3Þ
Y i

where TEi is the rice production technical efficiency score of the ith farm, Yi is the ob-
served output as specified by Eq. (1), and Y i is the unobserved frontier output which
assumes a technically efficient production. Equation (3) is restated as:

F ðX i ; βÞ expðvi −ui Þ
TEij ¼ ð4Þ
F ðX i ; βÞ expðvi Þ

This can be simplified to TEij = exp(−uij). Since the actual production is usually less
than the frontier production (Y i ≤ Y i ), the feasible values for TE lies between 0 and 1,
with a TE of 1 indicating that the actual production is equal to the frontier production
and farm is said be technically efficient (Bravo-Ureta and Pinheiro 1997; Ahmed and
Melesse 2018).
The analytical framework for the SCF used for the analysis of EE is specified in Eq. (5):

C ij ¼ F ðW i ; Y i ; γ Þ expπ i ð5Þ

i ¼ 1; 2; ::::::::::::;n farms

i = 1, 2,…n farmswhere Ci is the cost of rice production of the ith farm, Wi is a vector
of inputs associated with farm i producing output Yi of rice, and πi is the composite
error term which can be decomposed into δi + μi, where μi is the inefficiency parameter
and δi is the stochastic term associated with random variations in production, while γ
is a vector of parameters associated with the production function. F(.) is the functional
relationship between cost, prices, and output.
By decomposing the composite error terms, Eq. (5) can be restated as:

C ij ¼ F ðW i ; Y i ; βÞ expðδ þ μÞ

EE would then be estimated as specified in Eq. (6):

Ci
EE ¼ ð6Þ
C i

where Cij is the observed cost of the ith farm for production for the jth crop enterprise
as specified in Eq (6), while C ij is the frontier cost of production for the jth crop enter-
prise which assumes an economically efficient production for the ith farm. Equation (6)
can be restated as:

F ðW i ; Y i ; βÞ expðδ i þ μi Þ
EE ¼ ð7Þ
F ðW i ; Y i ; γ Þ expðδ i Þ

This can be simplified as EE = exp μi which is the economic efficiency for the ith farm
for the production of rice. Like the TE, EE also takes on values between 0 and 1, with
EE of 1 representing a cost-efficient farm.
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 6 of 19

Empirical model for the estimation of allocative efficiency

The model specification for TE analysis used in this study included three inputs that
were being used by farmers in the study area while the model specification for EE ana-
lysis used in this study included three cost factors and output as the major determi-
nants of cost. These inputs were land, labour, and planting materials for the TE model
and their prices for the EE model. Other inputs were not reported. For instance, no
respondent reported using fertilizers and herbicides in rice production in the study
sample. Other studies also reported that the use of inputs such as purchased fertilizers
is still very low in Uganda. For instance, in a study of rainfed rice farming in Uganda,
Haneishi et al. (2013) reported that less than 10% of rice farmers used fertilizers while
only about 13% of the rice farmers surveyed applied herbicides in rice production. Also
Larson et al. (2014) reported that the average use of inorganic fertilizer for Uganda was
about 0.69 kg/ha. According to the Census of Agriculture of 2008/2009, only 8% of the
farmers were reported to use inorganic fertilizers in production (UBOS 2010).
Using the Cobb-Douglas production function, TE model in Eq. (4) was specified as in
Eq. (8) for this study:

β β β
Y i ¼ β0 X 1i1 X 2i2 X 3i3 eðvi −ui Þ ð8Þ

where Yi is the rice output in kilogrammes for the ith farm, X1 is the land area in hec-
tare allocated to rice production, and X2 is the quantity of rice seeds in kilogrammes,
while X3 is the labour used for rice production. Labour was reported in hours and ad-
justed for differences in labour time used by men, women, and ox-plough to clear a
given parcel of land or to perform a given farm activity. Specifically, four farming activ-
ities were considered. These were ploughing (both primary and secondary tillage),
planting, weeding, and harvesting. Each of these activities takes different times to
complete when using the different categories of labour. vi is the random error term
associated with the ith farm for rice production while ui is the inefficiency for the ith
farm associated with rice production. β0 is the constant, while β1, β2, and β3 are the
elasticities of rice production for land, seeds, and labour, respectively.
The EE model in Eq. (7) was specified as in Eq. (9) for this study:
γ γ γ γ
C i ¼ γ 0 Y i 1 W 1i2 W 2i3 W 3i4 eðδi −μi Þ ð9Þ

where Ci is the cost of producing rice in Ugandan shillings for the ith farm, W1 is
the cost of land per acre in Ugandan shillings, W2 is the price of planting material
per unit in Ugandan shillings, and W3 is the cost of labour per labour hour. The
cost of labour per labour hour was computed as a ratio of the total cost of clear-
ing a given parcel of land to the time taken to clear the given parcel of land. δi is
the random error term associated with the ith farm cost of producing rice, while
μi is the inefficiency for the ith farm associated with the cost of producing rice. γ0
is the cost constant, and γ1, γ2, + γ3, and γ4 are the parameters associated with cost
factors.
Specifications in Eqs. (8) and (9) were estimated by fitting the Cobb-Douglas (CD)
type production functions. The CD production function was chosen due to its ease of
estimation and ability to be easily extended to cover more than two inputs used in pro-
duction (Debertin 2012). Other specifications were tested, but the CD gave the best
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 7 of 19

results. Unlike the original CD production specification, the CD type production func-
tion has the advantage that it does not restrict the returns to scale to equal to 1. The
same specifications were used by Bravo-Ureta and Pinheiro (1997), Bravo-Ureta et al.
(2007), Ahmed and Melesse (2018), Bonabana-Wabbi et al. (2013), and Mugonola et al.
(2013) among others. Specifically, Eqs. (8) and (9) were linearized using logarithmic
transformations as specified in Eqs. (10) and (11):

ln Y i ¼ α þ β1 ln X 1i þ β2 ln X 2i þ β3 ln X 3i þ v−u ð10Þ

ln C i ¼ ρ þ γ 1 ln Y i þ γ 2 ln W 1 þ γ 3 ln W 2 þ γ 4 ln W 3 þ δ−μ ð11Þ

The estimated TE and EE scores were then used to estimate AE scores for the study.
The study used the maximum likelihood (ML) method of estimating for the stochastic
CD production and cost functions. Following Bravo-Ureta et al. (2007), this study also
estimated a robust regression as a means of controlling for potential heteroskedacticity.
Our results showed consistency in estimates of the parameters with ML and robust
estimation respectivity. Bonabana-Wabbi et al. (2013) and Nwaiwu et al. (2010) also
showed consistency of ML and robust estimations in SFA analysis of TE. In estimating
the SPF and SCF, the half normal distribution gave the best results as opposed to other
distributional assumptions, including the normal, the truncated normal, the gamma
distribution, and the exponential distribution.
A likelihood test ratio confirmed presences of stochastic technical and economic inef-
ficiency effects, justifying the SPF and SCF procedures, respectively.

Estimating allocative efficiency of rice production

Achieving AE requires that a farm uses the allocatively efficient input demand function.
As specified by Bravo-Ureta and Pinheiro (1997) and Okoye et al. (2007), the alloca-
tively efficient input demand function could be estimated from Eq. (9) using Shephard’s
lemma as shown in Eq. (12):

∂C i ∂ F ð W i ; Y i ; βÞ
¼ ¼ X i ðW ; Y ; αÞ ð12Þ
∂W i ∂W i

Allocative efficiency would then be estimated as in Eq. (13). The same specifications
were used by Kumbhakar and Lovell (2000) and Coelli et al. (2005) following Farrell
(1957) and used by Bravo-Ureta and Pinheiro (1997), Okoye et al. (2007), and Obare
et al. (2010) among others.

EEij
AEij ¼ ð13Þ
TEij

where AEij, EEij, and TEij represent the allocative efficiency, economic efficiency, and
technical efficiency of the ith farm for rice production. Technical and economic effi-
ciency can be decomposed as shown below:
Pn
X it W i
TEi ¼ Pi¼1
n ð14Þ
i¼1 X i W i

and
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 8 of 19

Pn
X ie W i
EEij ¼ Pi¼1
n ð15Þ
i¼1 X i W i

where TEij is the technical efficiency for rice production for ith smallholder farmer,
Pn
i¼1 X it W ij is the technically efficient cost of producing rice by the ith farmer, and
Pn Pn
i¼1 X i W i is the observed cost of producing rice for the ith farmer, while i¼1 X ie W ij
is the economically efficient cost of producing output j by the ith smallholder farmer.
Xi is the input requirements for rice production for the ith smallholder farmer. Given
the technical and economic efficiency as estimated in Eqs. (14) and (15), the allocative
efficiency of the smallholder farmer was estimated from:
Pn
X ie W i
AE ¼ Pi¼1n ð16Þ
i¼1 X it W i

This is the ratio of the economically efficient cost to the technically efficient cost of
producing rice for the ith smallholder farmer. The specification in Eq. (16) can be
restated as in Eq. (17):
expμij
AE ¼   ð17Þ
exp −uij

where μij is the economic inefficiency parameter and uij is the technical inefficiency
parameter.

Estimating factors affecting allocative efficiency of rice production

Following Okoye et al. (2007) and Obare et al. (2010), the study used a Tobit regression
to analyse the factors affecting allocative efficiency. This model was used given the fact
that allocative efficiency has both the lower and upper bounds (AE value ranges from 0
to 1), and using the ordinary least squares (OLS) method would cause errors in predic-
tions (Cameron and Trivedi, 2005; Gujarati and Porter, 2010). These errors in OLS
would result from gross violations of the assumptions necessary for the validity of the
OLS model. Assumptions of the OLS model include the normality of distributions,
homoscedasticity of errors (equal variances), and exogeneity of independent variables.
According to Cameron and Trivedi (2005), OLS leads to inconsistent parameter esti-
mates if any of the assumptions are violated. The distributional assumption is the most
important assumption that motivates the use of the Tobit model. For instance, because
our dependent variable only takes values within a specified range, the distributional as-
sumptions of normality would be violated, and thus, the OLS estimates would be incon-
sistent. The Tobit model on the other hand uses the maximum likelihood estimation
(MLE) procedures to estimate errors in the presence of non-normal distribution. MLE is
considered the most efficient estimator for asymptotically distributed dependent variable
(Wooldridge 2002). Unlike the OLS that uses the least sum of squares to estimate the pa-
rameters of the model, the MLE estimates unknown parameters such that the probability
of observing it (the parameter) in the population is maximum.
Following Wooldridge (2002) and Cameron and Trivedi (2005), the Tobit regression
model is specified as in Eq. (18):
Y  ¼ X i β þ ui ð18Þ
∗
where Y is the dependent variable that takes on values within specified limits, Xi is a
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 9 of 19

vector of independent variables that have potential influence on the dependent variable,
and β is a vector of parameters to be estimated by the Tobit model, while ui is an error
term which is assumed to be independent and identically distributed.
The model specification in Eq. (18) is modified for the analysis of factors affecting
the AE of smallholder farmers as in Eq. (19):

AE i ¼ X i β þ ui ð19Þ

Where;
AE i ¼ 0 if AE i < 0

AE ij ¼ AE i if 0≤ AE i ≤ 1

AE i ¼ 1 if AE i > 1

where AEij is a latent variable representing allocative efficiency scores as estimated in

Eq. (19). These efficiency scores take on a minimum value of 0 and a maximum value of
1. Xi is a vector of explanatory variables which can potentially affect AE of rice produc-
tion. These included experience, house size, size of land holdings, use of hired labour, use
of ox-plough, number of enterprises undertaken, access to credit services, membership to
a farmers’ group, distance to the nearest trading centre, locational dummy, and marital
status. β is a vector of parameters to be estimated associated with farm-specific attributes.

Results and discussion

Socioeconomic characteristics of rice farmers in Gulu and Amuru districts
Socioeconomic characteristics of sampled farmers are presented in Table 1. The mean
age of farmers was 38 years. Fifty-nine percent of the respondents were male, and over

Table 1 Socioeconomic characteristics of the farmers

Variable Unit Mean (SD)
Age of the household head Years 37.61 (12.43)
Gender Dummy (1 = male) 0.59 (0.49)
Farmer is married Dummy (1 = married) 0.86 (0.35)
Level of education Years 6.53 (2.98)
Respondent is household head Dummy (1 = yes) 0.67 (0.03)
Household size Number of members 7.43 (3.67)
Male household members Number of members 3.74 (2.07)
Female household members Number of members 3.69 (2.22)
Household members < 14 years old Number of members 2.70 (1.99)
Household members 14–64 years old Number of members 4.56 (2.70)
Household members > 64 years old Number of members 0.18 (0.62)
Farming experience Years 18.14 (12.23)
Distance to nearest trading centre Kilometres 3.72 (5.26)
Number of crop enterprises Number of enterprises 4.10 (1.31)
Total land area available Hectares 2.76 (2.74)
Total area for crop production Hectares 1.91 (1.54)
In case of dummies, we have proportions instead of means. SD standard deviation (in parentheses)
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 10 of 19

86% of all respondents were married. The average level of education was less than 7
years of formal education. The average household size was seven members. The house-
holds were living on average 4 km from the nearest trading centre. Households were in-
volved in the production of many crop enterprises with the average number of
enterprises per household being four. The number of crop enterprises has a direct rela-
tion to how a particular household utilizes its farm resources. However, the land size
available was within the range for smallholder farmers.
This mean age is within the age bracket of 15–64 years that forms the 49.2% of the
total population in Uganda (UBOS 2016). The mean age positively correlates with
farmers’ experience with an average of 18 years. Other studies also reported similar
mean ages of farmers (see, for example, Hyuha et al. 2007). The level of education re-
ported in this study depicts the general trend for the whole country. According to the
Uganda National Population and Housing Census of 2014 (UBOS 2016), 58.4% of the
population were primary school dropouts or primary school leavers. In most rural areas
such as in the study area, the proportion of primary school dropouts is significantly
higher than the national average. According to UBOS (2010), male-headed households
dominate a majority of agricultural households in Uganda. The average household size
reported in this study was higher than both the national and the district average of 4.7
and 5 members per household, respectively. Household sizes are usually higher in rural
areas than in urban places. The national and district averages consider households
in both rural and urban areas; however, this study focused on the rural areas
where farming is majorly practiced. This distance to the nearest trading centre is a
standard proxy indicator and metric for the ease of accessibility of markets for
both inputs and outputs.
Farmers normally engage in a number of enterprises so as to diversify their in-
comes and/or food sources and risks. In addition, farmers may also undertake a
combination of agricultural enterprises as a mitigation strategy for risks (Debertin
2012). Production of many crop enterprises is also important considering the food
security and income needs of the households. Although there is no direct link be-
tween crop diversification and crop yield, it is anticipated that this is one of the
strategies farmers use to insure against risks of crop failure. In other words, it is a
self-insuring strategy that farmers use to buttress themselves against production
and marketing risk (Ashok et al. 2004). Bhattacharyya (2008) and Lin (2011) inde-
pendently noted that crop diversification may also be used as a practice for soil
and water conservation. In this case, the effect of crop diversificantion on crop
yields would only be realized over time.
In the Uganda Census of Agriculture, UBOS (2010) reported that agricultural house-
holds in Northern Uganda had the highest land under agricultural production. In fact,
the average total agricultural land for Northern Uganda was 1.6 ha per household. The
national average was however reported to be 1.1 ha per household. This result is
consistent with the description of a smallholder farmer who cultivates on average 2 ha
of land (FAO 2014). These findings are also consistent with the findings of Larson et al.
(2014) who reported average farm sizes of 1.42 ha, 2.24 ha, 1.74 ha, and 2.01 ha for
maize-producing households in Malawi, Tanzania, Kenya, and Uganda, respectively.
Fischer and Qaim, (2014) also reported average farm size of 1.30 ha for banana-
producing households in Kenya.
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 11 of 19

Allocative efficiency analysis

Stochastic production frontier Cobb-Douglas estimation
Results show that the major determinants of rice production were the area of land
allocated and the quantity of seeds used. All the inputs exhibited positive coeffi-
cients (elasticities of production) implying that they have a positive effect on out-
put. Increasing area allocated to production by 1% is likely to increase rice yield by
0.67% (p < 0.01) ceteris paribus, while an increase in seeds by 1% is likely to in-
crease yield by 0.31% (p < 0.01) ceteris paribus (Table 2). Labour however had no
significant influence on rice output. The insignificance of labour to rice yield could
be attributed to the direct relationship between quantity of labour used and land
area planted.
Farmers in Gulu district have higher rice yields than their counterparts in Amuru dis-
trict (p < 0.01). Rice farmers in Gulu district had 36% higher yields than those in Amuru
district. Crop yields are expected to vary across geographical locations. This is mainly
attributed to the spatial variations in weather and climatic determinants of yields
(Wood et al. 2016). For instance, Haneishi et al. (2013) reported different yield levels
for farmers in different agroecological zones of Uganda. Oonyu (2011) reported that
rice yields were significantly different from rice produced in the wetlands and that pro-
duced outside the wetlands in Butaleja district.
Given that farmers usually undertake a number of enterprises for purposes of diversi-
fication, the number of enterprises undertaken is most likely to influence output of the
crop cultivated. In this study, the number of enterprises undertaken was also a major
determinant of rice yield (p < 0.01). Farmers who are undertaking many crop enter-
prises were more likely to have higher yields. Although there is no direct link between
rice yield and number of enterprises undertaken, farmers usually undertake crop diver-
sification as a measure to combat potential risk of crop failure. Lin (2011) reported crop
diversification, if practiced properly, can in the long run lead to an increase in overall
productivity of the farm. For instance, if farmers practice crop diversification through
practices such as crop rotation, the fertility of their land is enhanced and this can in

Table 2 Results of the Cobb-Douglas stochastic production function estimation

Log rice output Coefficient (standard error)
Log labour time (hours) 0.008 (0.069)
Log rice seeds (kg) 0.309*** (0.089)
Log land area (acre) 0.671*** (0.104)
District (Gulu) 0.363*** (0.112)
Number of crop enterprises 0.080** (0.036)
Purchase input use indicator − 0.061 (0.129)
Constant 5.127*** (0.557)
N 200.000
Wald chi2(6) 212.160
Prop > chi2 0.000
Log likelihood − 219.936
VIF test had mean VIF of 1.45. All the variables in this model had VIF values of less than 3, which is highly acceptable
**5% level of significance
***1% level of significance
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 12 of 19

effect lead to an increased productivity. Bhattacharyya (2008) reported that farmers use
crop diversification as an approach to soil and water conservation.
The findings in this study are consistent with those of other studies. For instance,
Bonabana-Wabbi et al. (2013) reported that female labour and planting materials were
the major determinants of potato yield in South Western Uganda. In another study by
Mugonola et al. (2013), it was found that land, labour, assets owned, and location
(depicted by subcounty indicators) were significant determinants of banana yield with
respect to adopters and non-adopters of specific soil and water conservation technolo-
gies in the Upper Rwizi micro-catchment of Uganda. Another study by Nwaiwu et al.
(2010) showed that the major determinants of cassava yield for external input users in
Imo state of Nigeria were land and capital. Results from all these studies reveal that not
all factors of production would significantly determine yield although they would still
remain important in production.

Stochastic cost frontier Cobb-Douglas estimation

Analysis of production cost determinants using the stochastic cost functions reveals
that cost of production significantly depends on the output (p < 0.01). In addition, cost
of labour per unit significantly (p < 0.01) influenced cost of production (Table 3). The
prices of seeds and land rent were not significant cost determinants. These results were
comparable to those of Ingabire et al. (2013).
Rice farmers who used hired labour incurred more cost than those who did not. The
impact of hired labour on cost of producing rice can be attributed to the fact that cost
of labour is usually high for certain activities in rice production. This is due to the in-
creased labour demand during periods like weeding and harvesting. In addition, there
was no significant difference in cost of rice production in Gulu and Amuru districts.
Cost elasticities are presented in Table 3. For instance, a 1% increase in rice output is
likely to be associated with 0.29% percentage increase in cost of rice production, while
a 1% increase in the cost of labour used for rice production is likely to increase cost of

Table 3 Results of the robust Cobb-Douglas stochastic cost frontier estimation

Log cost of producing rice Coefficient (standard error)
Log rice output (kg) 0.291*** (0.048)
Log land rent per acre per year (UShs) 0.224 (0.137)
Log price planting material (UShs) 0.080 (0.090)
Log labour cost per hour (UShs) 0.503*** (0.064)
District (Gulu) − 0.111 (0.084)
Hired labour use dummy − 0.176** (0.080)
Constant 4.699*** (1.731)
N 200
Wald chi2(6) 148.020
2
Prop > chi 0.000
Log likelihood − 170.099
VIF test had mean VIF of 1.15. All the variables in this model had VIF values of less than 3, which is highly acceptable
**5% level of significance
***1% level of significance
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 13 of 19

producing rice by 0.50%, ceteris paribus. It can also be seen that rice farmers who used
hired labour incurred on average a 17% higher cost of production.

Average efficiency scores of rice production in Northern Uganda

All households were technically and economically inefficient in the production of rice.
This means that their levels of efficiency were less than 100%. The mean TE, EE, and
AE were 78%, 59%, and 75% (Table 4). These results show that farmers can increase
their rice production by 22%. It also shows that they can reduce their cost of produc-
tion by 41%. These results corroborate earlier findings that show that farmers do not
attain maximum efficiency. For instance, Bonabana-Wabbi et al. (2013) found out that
the mean technical efficiency for potato farmers in South Western Uganda was 69%. In
another study, Akpan et al. (2013) reported that the mean economic efficiency of
cassava-based farmers in Cross River state of Nigeria was 58%, while Tijjani and Bakari
(2014) reported that the mean allocative efficiency for rainfed rice production in Taraba
state was 69%. Several other studies found similar results (see, for example, Bifarin
et al. 2010; Haile 2015; Ahmed and Melesse 2018; Karimov 2014).

Factors affecting farm-level resource allocative efficiency

Results for analysis of factors affecting farm-level resource allocative efficiency are pre-
sented in Table 5. These results revealed that there are a number of factors that influ-
ence AE of rice production. AE has a significant relationship with district indicator
(p < 0.05), household size (p < 0.01), distance to the trading centre (p < 0.1), farm size
(p < 0.05), number of crop enterprises (p < 0.05), use of hired labour (p < 0.05), use of
ox-plough (p < 0.01), and access to credit (p < 0.1). Other factors such as marital status,
farming experience, and membership to a farmers’ group had no significant influence
on AE.
Rice farmers in Gulu district have a 2.8% higher AE than their counterparts in Amuru
district. Other studies have also showed that AE is significantly affected by location of
the farmer. For instance, Tsoho et al. (2012) reported that location of the farmer was a
significant determinant of AE of dry season vegetable farmers. These can be attributed
to a number of factors including types of inputs used, differences in agronomic prac-
tices, and differences in soil properties between different locations.
The number of individuals in a household had a negative relationship with AE. For
instance, an increase in household size is likely to result into a decline in AE of rice
production by 3.7%. Comparable results were reported by Asogwa et al. (2011) and
Islam et al. (2011). Although other authors reported that household size had no signifi-
cant influence on AE (see, for example, Haile 2015; Sibiko et al. 2013; Nargis and Lee
2013; Tsoho et al. 2012), others reported that household size had a significant positive
influence on AE (see, for example, Bravo-Ureta and Pinheiro 1997; Tijjani and Bakari

Table 4 Mean efficiencies of rice production in Northern Uganda

Efficiency parameter Mean Std. dev. Min Max
Technical efficiency 0.784 0.068 0.433 0.888
Economic efficiency 0.588 0.164 0.127 0.873
Allocative efficiency 0.750 0.200 0.157 1.138
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 14 of 19

Table 5 Factors affecting allocative efficiency of rice production in Northern Uganda

Allocative efficiency Coefficient (robust standard error)
District (Gulu) 0.0280** (0.0127)
Marriage dummy (married) − 0.0206 (0.0256)
Household size − 0.0371*** (0.0039)
Experience (years) 0.0001 (0.0005)
Distance to the nearest trading centre 0.0025** (0.0012)
Farm size − 0.0071*** (0.0017)
Number of crop enterprises 0.0119** (0.0053)
Use of hired labour − 0.0388** (0.0170)
Use of ox-plough 0.0409** (0.0173)
Membership to a farmers’ group 0.0073 (0.0144)
Access to credit services − 0.0274* (0.0142)
Constant 0.8683*** (0.0367)
Sigma 0.0874 (0.0067)
F(11, 188) 22.6000
Pseudo R square − 1.0403
Log likelihood 203.6386
N 200
VIF test had mean VIF of 1.26. All the variables in this model had VIF values of less than 3, which is highly acceptable
*10% level of significance
**5% level of significance
***1% level of significance

2014). It is generally agreed that household size influences both family and hired labour
supply (Kamau et al. 2009). The most common source of labour for agricultural pro-
duction in the case of smallholder farming is family labour. Household size has a great
contribution to the available family labour. Considering that farm sizes are less variable,
small families would therefore utilize their available labour more than large families.
Thus, as household size increases, more and more labour is made available for agricul-
ture production. They thus become relatively inefficient. This evidence is made clearer
in the presence of labour market failures that are common in developing countries
(Norton et al. 2010). Kamau et al. (2009) reported that households are generally ineffi-
cient in terms of labour use, but their productivity and internal efficiency were seen to
increase if they are linked to off-farm labour markets. Additionally, Shittu (2014)
observed that increasing off-farm labour supply reduces the production inefficiency (in-
creases efficiency) of rural farm households.
There is also an inverse relationship between farm size and AE of rice. Specifically,
an increase in farm size is likely to reduce AE for rice production by 0.7%. This result
is consistent with earlier studies that postulated the inverse productivity hypotheses in
African smallholder agriculture (see, for example, Ali and Deininger, 2014). It provides
more evidence on the inverse productivity hypotheses. Other studies also reported
comparable results. For instance, Larson et al. (2014) reported negative elasticities of
production between maize yield and plot size for maize farmers in Malawi, Tanzania,
Kenya, and Uganda implying that farmers who allocated smaller plots for maize pro-
duction were getting higher yields. Gautam et al. (2012) also found negative relation-
ships between both TE and AE for farmers in India. It is argued that small farms are
more productive than relatively large farms. This is attributed to the efficiency of
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 15 of 19

resource use that small farms are able to attain. For instance, Ali and Deininger (2014)
showed that smallholder farmers in Rwanda with relatively smaller parcels of land were
using labour more efficiently. In fact, labour use efficiency was inversely related to farm
size. These results however contradict the findings of Tung (2013) in Vietnam that
favours farm expansion so as to benefit from increased efficiency.
Using hired labour is associated with reduced efficiency. For instance, results from this
study suggest that rice farmers who use hired labour have a 3.8% lower AE than their
counterparts who do not use. In addition, Gautam et al. (2012) and Obwona (2006) inde-
pendently reported inverse relationships between use of hired labour and AE. Use of hired
labour requires that a farmer allocates part of his/her time to supervise the hired
labourers. However, many farmers cannot effectively monitor the hired labourers working
on their farms. This is because of competition between different activities for the farmers’
time. Farmers simply leave the hired labourers with minimal supervision, and this affects
both quality and quantity of work done, thus reducing efficiency.
Distance to the trading centre is an important standard indicator for market accessi-
bility for both input and outputs for smallholder farmers. The study found a positive
relationship between distance to the nearest trading centre and AE for rice production.
In fact, an increase in distance to the trading centre is associated with a 0.3% increase
in AE. Using panel data, Gautam et al. (2012) reported different effects of distance to
the market on efficiency of farmers in India. In one model specified for one panel, they
reported that distance to the wholesale market had a positive effect on both AE and
TE, while in another model of the same study specified for a different panel, there was
an inverse relationship between farm efficiency and distance to the wholesale market.
The relationship between AE and distance to the trading centre is largely dependent on
how the trading centre affects household farming-related aspects. For instance, staying
next to a trading centre might provide farming households with options of non-farm
activities that reduces their effective farming labour. If the reduction is not compen-
sated by an equivalent alternative labour force, the overall effect can be reduced alloca-
tive efficiency.
The study also suggests that there is a positive relationship between use of ox-
ploughs in rice production and AE. In other words, farmers who use ox-ploughs in rice
production have 4.1% higher AE. Ox-ploughs provide deep tillage than the use of hand
hoes. This helps in soil and water conservation. If ox-ploughs are used in the produc-
tion of a drought-sensitive crop such as rice, it is expected that the improved soil and
water conservation will translate to higher productivity. For instance, Haile (2015) re-
ported that onion farmers who used ox-ploughs were achieving 20% more yield than
their counterparts who were not using this technology. Crop productivity is directly re-
lated to AE.
Farmers who used credit to finance their rice production had a significantly lower AE
than those who did not acquire credit. In fact, farmers who used credit in financing rice
production had 2.7% lower AE. Comparable results were also reported by other authors
(see, for example, Baruwa and Oke 2012; Maganga 2012; Chiona et al. 2014). This result
however contradicts the findings of Aboki et al. (2013); and Obwona (2006) among others
who independently reported that self-financed farmers were less efficient than those who
use other sources including credit. The sources of credit in the study area included cash
and credit purchase from input dealers. Financial credit comes with a cost which
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 16 of 19

translates into increased cost of production. Over 75% of the farmers reportedly received
credit for agricultural production from Village Savings and Loans Associations (VSLA) lo-
cally known as ‘boli-cup’. The VSLAs charge an average of 10% monthly interest rate on
money borrowed which could be a deterrent to increased production.
The study also suggests that there is a positive relationship between crop enterprise
diversification measured by the number of enterprises undertaken and AE. Specifically,
an increase in the number of enterprises undertaken is associated with a 1.2% in-
crease in AE. Undertaking many crop enterprises ensures that productive resources
such as labour are maximally utilized, thus improving efficiency. It has been ob-
served that crop diversification has an effect of maintaining or improving soil prod-
uctivity (Bhattacharyya 2008; Lin 2011). This can later improve productivity and
consequently efficiency.

Conclusion
This paper contributes to the debate on efficiency of smallholder agriculture. It ana-
lysed the allocative efficiency of rice production in Northern Uganda. Results provided
more evidence of inefficiency in rice production. Farmers could reallocate resources to
achieve a much higher efficiency. This reallocation of resources could see farmers
increasing their output by 22% while reducing costs by 41%. Farmers could adjust the
input combinations to levels that achieve the minimum cost while producing the max-
imum possible output. This reallocation is feasible given that factors associated with in-
efficiency are already known. For instance, the inefficiency resulting from the inverse
productivity hypotheses is largely attributed to increased labour demand that necessi-
tates farmers to use hired labour, which increases the burden of supervision for it to be
efficient. In most cases, farmers have to incur more cost per unit if this hired labour is
to be efficient. However, an increase in wage rate increases cost, thereby reducing the
allocative efficiency of the farm. Socioeconomic factors have a bearing on the realloca-
tion of resources for purposes of achieving AE. For instance, households with ‘abun-
dant’ labour can be encouraged to take on other non-farm activities so as to increase
their labour use efficiency. It has been shown that participation in non-farm activities
increases labour use efficiency.
In order to ensure that farmers in the region move out of poverty and improve their
food security status, it is important that interventions that would increase their AE,
especially in the face of dwindling resources, are adopted. Increasing labour use effi-
ciency, for instance, would require that options for non-farm economic activities be
availed so as to increase labour use efficiency. Other interventions to increase AE
should target increasing the productivity of land. Such interventions can include pro-
viding training to farmers on practices that increase agricultural productivity through
adoption of yield-enhancing technologies such as the use of ox-ploughs. Also, the use
of ox-plough would increase cost to smallholder farmers; the increased cost is overset
by its improvement of the allocative efficiency. This recommendation partly originates
from the findings that the average years of formal education for these farmers was 6.53
years, with very limited extension coverage. For instance, only 17.8% of farmers re-
ported receiving extension services with an average number of visits of 1.2 times per
annum. This implies that farmers are not receiving extension training which can cause
a change in their efficiency of allocating resources for rice production.
Okello et al. Agricultural and Food Economics (2019) 7:19 Page 17 of 19

Although the study has shown that allocative efficiency can be achieved through re-
allocation of farm resources especially labour and adoption of simple technologies such
as the use of ox-ploughs in rice production, it does not show how this can be practic-
ally achieved. For instance, the study only showed that those who use ox-plough have a
higher allocative efficiency than those who do not, but does not show why the farmers
choose to use ox-ploughs and whether they have the capacity and ability to take it up if
introduced to. It is therefore important that the modalities for practicality of these find-
ings be investigated.
Abbreviations
AE: Allocative efficiency; AGRA: Alliance for a Green Revolution in Africa; CD: Cobb-Douglas; DEA: Data envelopment
analysis; EE: Economic efficiency; FAO: Food and Agriculture Organization of the United Nations; kg/ha: Kilogrammes
per hectare; MAAIF: Ministry of Agriculture, Animal Industry and Fisheriers (Uganda); ML: Maximum likelihood;
MLE: Maximum likelhood estimation; NERICA: New Rice for Africa; OLS: Ordinary least squares; SCF: Stochastic cost
function; SFA: Stochastic frontier approach; SPF: Stochastic production function; SSA: Sub-Saharan Africa; TE: Technical
efficiency; UBOS: Uganda Bureau of Statistics; VSLA: Village Savings and Loans Associations

Acknowledgements
Not applicable.

Authors’ contributions
In producing the manuscript, all the three authors conceptualized the study. DMO collected, analysed, and produced
the first draft of the manuscript. JB read the first draft and second draft of the manuscript, and BM read the second
draft of the manuscript. All the authors contributed to the revision and approval of the final manuscript.

Funding
This study was funded by the Regional University Forum for Capacity Building in Agriculture (RUFORUM) through a
project titled ‘Strengthening University Outreach and Agri-Entrepreneurship Training for Community Transformation in
Northern Uganda’, grant number: RU 2014 NG 15.

Availability of data and materials

The datasets used and/or analysed during the current study are available from the corresponding author on
reasonable request.

Competing interests
The authors declare that they have no competing interests.

Author details
1
Department of Rural Development and Agribusiness, Faculty of Agriculture and Environment, Gulu University, P. O.
Box 166, Gulu, Uganda. 2Department of Agribusiness and Natural Resource Economics, College of Agricultural and
Environmental Sciences, Makerere University, P. O. Box 7062, Kampala, Uganda.

Received: 6 September 2018 Accepted: 24 September 2019

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