An Empirical Assessment Of Technical Efficiency In The Kenya Sugar Industry: Data Envelopment Analysis (Dea) Approach

Abstract

The sugar industry in Kenya has been struggling and falls behind competitively produced sugar from COMESA and non-COMESA countries like Brazil. The key challenges facing the industry include high cost of production, low farm productivity, firm inefficiency, sub-optimal firm production, mismanagement, and corruption among others. Using data envelopment analysis (DEA), this study estimated the technical efficiency levels of sugar firms in Kenya. Moreover, this study used panel regression to estimate the factors affecting technical inefficiency in the sugar firms. Data on sugarcane production by all firms from 2009 to 2018 was used. Using variable return to scale (VRS) assumption and output orientation, this study decomposed technical efficiency into pure technical efficiency (PTE) and scale efficiency (SE). This study found an average overall technical efficiency of 84.21%, average pure technical efficiency (PTE) of 89.95%, and scale efficiency of 94.74% in the sugar industry. Private firms had higher efficiency levels than state owned firms but the difference was not significant. Moreover, this study found state ownership, cane quality, labour, and product diversification to have significant effects on inefficiency levels. However, age, skill level, and capital-labour ratio were all insignificant in affecting firm inefficiency levels.