Enhancing Technical Efficiency and Economic Welfare: A Case Study of Smallholder Potato Farming in the Western Highlands of Guatemala

Abstract

Smallholder farmers in the Western Highlands of Guatemala grow potatoes for subsistence and as a cash crop but their current productivity is 29% lower than the world average. The objective of this study is to provide policy recommendations for improving potato productivity through enhancing technical efficiency in smallholder potato farming in the Western Highlands of Guatemala. In doing so, this study examines the determinants of potato productivity and identifies the sources of technical inefficiency in smallholder potato farming. In addition, the study evaluates the economic welfare impact of potato farm operations and provides policy recommendations for increasing smallholder potato productivity through enhancing technical efficiency. Stochastic production frontier analysis showed that on average farmers are at 57% efficiency. Hence, there is a considerable room for improving efficiency in potato farming. The sources of inefficiency of the farmers were determined to be caused by higher elevation, smaller farm size, and location of the farms. Welfare gains from reaching potential efficiency is US$ 8.79 million in terms of producer surplus per year in Guatemala. Hence, this study provides valuable information for policy makers and farmers for improving technical efficiency and producer surplus. Likewise, providing better conservation practices by extension will ameliorate the low productivity associated with higher elevation and locations that are lower in technical efficiency.