Cost efficiency among rice millers in Southwest Nigeria

Abstract

Purpose The purpose of this paper is to assess the efficiency of rice millers and determine factors influencing cost efficiency in Southwest Nigeria using the cost route approach. Design/methodology/approach The paper analyses cost efficiency of rice millers using primary data collected from 62 respondents through a structured questionnaire. A multi-stage sampling procedure was employed for this purpose. The profile of rice millers and mills were derived using the descriptive analysis. Cost efficiency of the millers was obtained using the quadratic cost function analysis, and Tobit regression was used to determine factors that influence cost efficiency. Findings The results showed that cost efficiency indexes range from 1 to 57 percent averaging at 20.2 percent. Large rice mills were found to be most efficient with the mean cost efficiency of 25 percent. Paddy, transport and energy costs contributed positively and significantly (p=0.05 and p=0.01) to cost efficiency. Milling capacity and machine age increase cost efficiency while the distance to purchase paddy and quantity of diesel used reduces cost efficiency. Social implications The paper shows that there is enough potential for rice millers to improve their cost efficiency based on the available technology. This has a direct implication on the economy through the increased domestic production and processing of rice to meet the increasing demand for locally produced rice. Originality/value The paper attempts to bridge the gap in the literature of cost efficiency among rice millers in Nigeria, and specifically in the application of the normalized quadratic cost function in estimating cost efficiency in the rice milling sector in Nigeria.