Profit efficiency analysis of rice production in Taiwan

Purpose The purpose of this paper is to analyze and compare the profit efficiency of custom and self-farming methods of rice production in Taiwan. Design/methodology/approach This study examines the nature and extent of the profitability and profit efficiency of custom and self-farming based on a farm survey in Taiwan. Furthermore, it estimates the stochastic profit frontier to measure the degree of inefficiency and analyze the determinants of these inefficiencies. Findings The profitability and profit efficiency of custom farming are lower than for self-farming, and the differences in profitability are more significant for large rice farmers. The estimation results show that the custom farming area and the farmer’s age decrease efficiency and, regardless of the farming style used, larger farms have higher profit efficiency. Research limitations/implications This study’s findings show that self-farming is more favorable than custom farming for profit efficiency. This study examined this problem by conducting a regression adjustment for explanatory variables, but did not remove all self-selection bias, which may occur between profit efficiency and the choice of farming system. Originality/value Previous studies that measured the efficiency of rice farming often considered cost efficiency by the cost function, and ignored the increased profit from producing high-quality rice. This study used a one-step estimation of the profit frontier function to measure the degree of inefficiency and analyze the determinants of this inefficiency.