Developing Country Studies www.iiste.org ISSN 2224-607X (Paper) ISSN 2225-0565 (Online) Vol.7, No.2, 2017 80 Economic Efficiency of Smallholder Farmers in Maize Production in Bako Tibe District, Ethiopia Kifle Degefa* 1 Moti Jaleta 2 Belaineh Legesse 3 1.Bako Agricultual Research Center, Bako, Ethiopia 2.International Maize and Wheat Improvement Center, Addis Ababa, Ethiopia 3.School of Agricultural Economics, Haramaya University, Ethiopia Abstract Ethiopian agriculture is characterized by low productivity due to technical and socio-economic factors. To improve this problem integration of modern technologies with improved level of efficiency become more crucial. Accordingly, this study was conducted using Stochastic Frontier Production Function (SFPF) to estimate the level of Technical Efficiency (TE), Allocative Efficiency (AE) and Economic Efficiency (EE) as well as Tobit model to identify factors affecting these efficiencies. The mean of TE, AE and EE were 82.93%, 66.03% and 54%, respectively. The mean of TE and AE implies that there exists possibility to increase production by 17.07% without using extra inputs and decrease cost of inputs by 33.97%, respectively. The result revealed high inefficiency among maize producers. The Tobit model results revealed that age, off/non-farm activities, sex, amount of land owned and perception on agricultural policy had a significant effect on TE. Education, frequency of extension visit, perception on agricultural policy and livestock holding had significant effect on AE while age, off/non-farm activities, sex, land owned, credit utilized and perception on agricultural policy had a significant effect on EE. The result showed that there are opportunities to increase efficiency of maize production. Therefore, the policies and strategies in development and research may act on these variables to increase the efficiency level of maize producers. Keywords: Cobb-Douglas, efficiency, maize, smallholders, stochastic frontier, Tobit 1. Introduction Ethiopian agriculture is characterized by low productivity due to technical and socio-economic factors. Mostly the farmers with the same resources are producing different per hectare output, because of management inefficiency inputs, limited use of modern agricultural technologies, obsolete farming techniques, poor complementary services such as extension, credit, marketing, and infrastructure, poor and biased agricultural policies in developing countries like as Ethiopia (FAO and WFP, 2012; World Bank, 2007). To reverse the situation, the Ethiopian government has design Growth and Transformation Plan (GTP-I) in the five years (2011- 2015). According to the plan, smallholder farmers are among the major targeted groups where increased agricultural productivity is believed to be achieved (David et al., 2011). One of the basic strategies of the Ethiopian government in improving agricultural productivity is to adopt new technologies and use of modern inputs. Among the crops grown in Ethiopia, maize (Zea mays L.) is the most important cereal crop in terms of production, area coverage and better availability and utilization of new production technologies (Arega and Rashid, 2005). It is the first cultivated and highly demanded food crop in the study area as well as in the western part of Ethiopia. Maize production can increase either through introduction of modern technologies or by improving the efficiency of inputs with existing technologies. These two are not mutually exclusive, because the introduction of modern technology could not bring the expected shift of production frontier, if the existing level of efficiency is low. This implies that the need for the integration of modern technologies with improved level of efficiency (Kinde, 2005). Therefore, a proper analysis of economic efficiency of farmers requires the estimation of both technical and allocative efficiencies. The modeling and estimation of both technical and allocative efficiencies of agricultural production is often motivated by the need for a more complete representation of economic efficiency of farmers implied by the economic theory of production (Arega and Rashid, 2005). Though, while a considerable number of studies have dealt with technical efficiency of farmers in developing countries like Ethiopia, very few studies have analyzed both technical and allocative efficiencies (Sharma et al., 1999; Jema, 2008). To the best of our knowledge, there has been no study that analyses comprehensively the efficiency of inputs in the study area. Therefore, the present study is useful in formulating appropriate policies and research information for reducing level of economic inefficiency with objectives of to measure the level of technical, allocative and economic efficiencies in maize production of smallholder maize producers and to identify the determinants of technical, allocative and economic inefficiencies in maize production of smallholder maize producers in the study area.