Please use this identifier to cite or link to this item: https://hdl.handle.net/1959.11/23555
Title: An Investigation of Production Risk, Risk Preferences and Technical Efficiency: Evidence from a Rainfed Lowland Rice Environment in the Philippines
Contributor(s): Villano, Renato Andrin (author); Fleming, Euan (supervisor); Battese, George E (supervisor); O'Donnell, Christopher John (supervisor)
Publication Date: 2004
Degree Conferred: 2004
Open Access: Yes
Handle Link: https://hdl.handle.net/1959.11/23555
Abstract: This study is motivated by the fact that rice is the staple food and principal crop of almost half of the world's population, especially in the humid and sub-humid regions of Asia. The main challenge facing the rice sector is to keep up with the increasing demand for rice. Rainfed rice environments offer substantial potential for increasing total rice production. However, these environments are associated with a high incidence of poverty, mainly because of low and unstable yields. Farmers in these environments face adverse biophysical, socioeconomic and cultural constraints to increasing rice productivity. The study of risk and technical efficiency is an important topic in agricultural development. The themes of risk and technical efficiency have not been adequately studied in rainfed rice environments. Risk plays a vital role in farmers' decisions on input allocations and, therefore, output supply. Low technical efficiency is believed to be one of the constraints to production in these environments. A more comprehensive and up-todate study on the nature of risk and technical efficiency in rainfed rice production is needed to target technology developments and policy interventions. This study seeks to provide empirical evidence on the nature of production risk, risk preferences and technical efficiency. An eight-year panel data set of 46 rice farmers from a representative rainfed lowland environment in Central Luzon, Philippines is used. Production risk is first analysed using a heteroscedastic production function model. This permits the examination of marginal effects of inputs on production risk independently of the effects of inputs on mean output. In this study, tests for the absence of heteroscedasticity provide evidence that the variance of the error term in the output function varies with changes in input levels, and, accordingly, indicate that output risk is significant in the production of rainfed rice. The results suggest that area, fertiliser and labour have significant positive effects on the mean output of rice. The fertiliser and labour inputs have significant and positive effects on the variance of output, indicating that they are risk-increasing inputs. Herbicide is a risk-reducing input, although its coefficient is not statistically significant. A stochastic frontier production function is then used to investigate the technical efficiency of rainfed rice farmers. The results show a mean technical efficiency of 79 per cent was achieved by the rainfed rice farmers in the study area. Thus, there is scope for increasing rice production by 21 per cent with the present technology. A significant variation was observed in the mean level of technical efficiency across farmers over the eight-year period. Several characteristics of farm operators, such as age and educational attainment, ratio of adults in the farm households and income from non-farm activities, were found to have significant effects on the technical inefficiency of rice production in the rainfed lowland environment. Simultaneous estimation of production risk, risk preferences and technical efficiency is then conducted using a stochastic frontier production function model with an additive heteroscedastic error structure. The risk preference function in the model developed by Kumbhakar (2002) is used to investigate risk preferences of farmers. The results revealed that the estimated output elasticities of inputs are consistent with estimates obtained using both the heteroscedastic production function model and the traditional stochastic frontier production function model. Higher estimates of mean technical efficiency were obtained. The results also revealed that all of the rainfed rice farmers were risk-averse, such that the degree of risk aversion varied across farms and over time. The empirical results emphasise the importance of risk and efficiency in the rainfed rice environments of the Philippines and, therefore, need to be given careful attention by research managers and policy makers. The results obtained in this study should help agricultural policy makers formulate better strategies and programs for the improvement of the rainfed rice industry.
Publication Type: Thesis Doctoral
Degree Granted by: University of New England
Degree Level: Doctoral
Degree Name: Doctor of Philosophy
HERDC Category Description: T2 Thesis - Doctorate by Research
Appears in Collections:Thesis Doctoral

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