Profit efficiency of smallholder rubber farmers in Kegalle, Kalutara and Ratnapura districts

In this paper, we examined the profit efficiency of smallholder rubber cultivators in Sri Lanka. Profit efficiency is central to an export oriented product such as rubber in the light of structural adjustment policies, viz. market liberalisation and currency devaluation. We employed a profit frontier to a cross section of farmers from three major rubber growing districts; Kegalle, Kalutara and Ratnapura. In doing so, we tested and assessed the adequacy of common model assumptions in the composed error literature. In our data set, we have found that the distributional assumption for the inefficiency term is immaterial in the ranking of farmers according to their levels of efficiency. Results further showed that the average profit efficiency in smallholder rubber farmers was 61.8 percent implying that around 38 percent improvement in efficiency could be achieved without any increase in costs. The major determinants of inefficiency are found to be the education levels of farmers, age (experience), type of clone planted and the type of output.