Technical Efficiency and its Determinants : A Stochastic Frontier Analysis of Sugar Mills in Uttar Pradesh

This paper disaggregates and explores the components of efficiency that contribute to the change in output, scale of production and technical efficiency of sugar mills in Uttar Pradesh. The efficiency concept defines the maximum level of output that can be obtained by using the same level of inputs in the production of a firm or industry. The investigation of inefficiency effect is obviously useful for the growth and development of sugar mills. To measure the efficiency level and its determinants of sugar mills operating in Uttar Pradesh by applying Stochastic Frontier Approach (SFA), data of 115 sugar mills for the year 2011-12 was collected. It is found that the public limited company is most efficient, while the public corporations are least efficient. However, the next best performing mills belong to individual proprietors. In terms of ownership, the state and central government (jointly) owned and wholly owned private sugar mills are found to be more efficient than others. Further, the sugar mills' years of operation has positive relationship with efficiency, but does not contribute significantly. High efficiency is associated with privately owned sugar mills. There is no difference between efficiency levels location-wise. It has been found that sugar mills are working at constant returns to scale, and the efficiency level can be changed by changing the scale. The technical changes would help the decision makers to realize the strengths and weaknesses that contribute to the growth and development of sugar mills