Technical Efficiency of Wheat Production in Iran

Technical Efficiency of Wheat Production in Iran

Dr. Sherko Soltanpanahi [email protected]

Contents1-Iran an overview 2-Irans economy 3- Agriculture sector 4-International wheat markets 5- Wheat importance and production in Iran 6-Efficiency and technical efficiency 7-Measurement approaches 8-Measurement techniques A-Data envelopment analysis (DEA) B- Stochastic frontier approach (SFA) C- Timmer index & Kopp index A-Case study 1 B- Case study 2 C-Case study 3 9- Conclusion

2

Where is Iran? PERSIAIslamic Republic of Iran

IRANCapital city: TEHRAN ( ) Political regime: Islamic Republic

3

Overview of Iran-GeographyIndicator (2010) Total Area arable land permanent crops Irrigated land Population Density (per km) Rank 1,648,195 sq km 9.78% 1.29% 89,930 sq km 47.32in the world

18

5

4Source: World Bank, 2011

Overview of Iran-climateIran's climate ranges from arid or semiarid, to subtropical. Iran has three climatic zones:1. Arid/semi-arid, 30-250 mm. 2. Mountainous, 250-600 mm. 3. The Caspian region, 600-2000 mm Average annual precipitation, 230 mm Temperature: -30 in the West (winter) to +45 in the South (summer)Source: FAO, 2011

5

Overview of Iran- PopulationIndicator (2010)Population Population growth rate Life expectancy Total adult literacy (15-24 years) literacy rate urban population rate of urbanization 78 million (2011) 1.248% (2011) 70.06 years 82.3% 95%71% 1.9%

Rank in the world 18 94 146 72

6Source: World Bank Data, 2011

Overview of Iran- PopulationCountryRank

Population (M)

1950357.6 554.8 157.8 39.7 79.5 29.8 41.8 54.0 12.2 18.4 27.7 20.0 27.4 16.92,519.5

20001,008.9 1,275.1 283.2 141.3 212.1 113.9 137.4 170.4 50.9 62.9 98.9 75.7 78.1 70.36,056.7

20151,230.5 1,410.2 321.2 204.3 250.1 165.3 183.2 201.4 84.0 89.8 119.2 95.9 94.4 87.17,207.4

20251,351.8 1,470.8 346.8 251.0 272.9 203.0 210.8 219.0 114.9 113.4 130.2 107.1 105.5 99.37,936.7

20501,572.1 1,462.1 397.1 344.2 311.3 278.8 265.4 247.2 203.5 186.5 146.7 128.4 123.8 121.49,322.3

1 India 2 China 3 USA 4 Pakistan 5 Indonesia 6 Nigeria 7 Bangladesh 8 Brazil 9 Congo 10 Ethiopia 11 Mexico 12 Philippines 13 Vietnam 14 Iran WorldSource: http://www.photius.com

7

Overview of Iran- Ethnic groups Ethnic groupsPersian 51%, Azeri 24% Gilaki and Mazandarani 8% Kurd 7% Arab 3% Lur 2% Baloch 2% Turkmen 2% other 1%

ReligionsSource: Wikipedia, 2011

Muslim 98% (Shia 89%, Sunni 9%) other (includes Zoroastrian, Jewish, Christian, and Baha'i) 2%

8

Overview of Iran-EconomyIndicator (2010)GDP (purchasing power parity) GDP - real growth rate GDP - per capita (PPP) Unemployment rate: Gini index Inflation rate (consumer prices) Industrial production growth rate$818.7 billion 3% $10,600 14.6% 44.5 11.8% 4.3% excluding oil Agriculture: 11% Industry: 45.9% Services: 43.1% Agriculture: 25% Industry: 31% Services: 45% Rank in the world 18 175 105 147 42 204 80

GDP - composition by sector

Labor force - by occupationSource: World Bank Data, 2011

9

Overview of Iran-EnergyIndicator (2010) Oil - production Oil - exports Oil - proved reserves Natural gas - proved reserves 4.172 million bbl/day 2.4 million bbl/day 137.6 billion bbl 29.61 trillion cu m Rank in the world 4 4 3 2

Iran has about 10% of world Oil reserves (1 January 2010)

10Source: World Bank Data, 2011

Overview of Iran-TradeIndicator (2010) Exports Imports Current account balance Reserves of foreign exchange and gold Stock of FDI- at home Imports - commodities1.Industrial supplies 2.Capital goods 3.Foodstuffs 4.Technical services

Rank$78.69 $58.97 $9.76 $75.06 $16.82 billion billion billion billion billion

in the world

37 44 24 20 72

Imports - partners1.UAE 15.14% 2.China 13.48% 3.Germany 9.66% 4.South Korea 7.16% 5.Italy 5.27% 6.Russia 4.81% 7.India 4.12%

Exports - commodities 1.Petroleum 80% 2.Chemical and petrochemical products 3.Fruits and nuts 4.Carpets Exports partners 1. China 16.58%, 2. Japan 11.9% 3. India 10.54% 4. South Korea 7.54%, 5. Turkey 4.36%

11

Source: World Bank Data, 2011

Overview of Iran-Currency Currency ; Rial ( )

=

IRR 11,000

IRR 250Source: CBI, 2011

= =

$US 1 INR 112

=

IRAN1 B = $ 85-120 1 Kg = $ 7-12 1 Kg = $ 2,500-14,000

1 Kg = $ 3,000-4,500

1 m2 = $ 800- 4,000 1 kitten = $ 300-2,000

13

Agriculture sector

14

Role of Agriculture sector in economy (2008)agricultural sector

More than 25% of the labor force are engaged in the Agriculture sector contributed 11% of the GDP More than 25% of export (except oil) income is from

agriculture in terms of value

requirement

Agriculture sector produces more than 80% of the food Agriculture sector provides 90% of the raw material of

agroindustriesSource: World Bank Data, 2011

15

Agriculture characteristicsscale production and dispersal of households.

(2008)

The main characteristics of Irans agriculture are smallNumber of agricultural holdings is 3.6 million which 2.8million with cultivated land and 0.8 million without cultivated land.

The total cultivated area is 120,000 sq. km, of which 46 %are irrigated and 54 % rainfed.

The average size of holdings in the irrigated sector isaround 2.93 ha, and 6.41 ha for the rainfed sector.16

Source: World Bank Data, 2011

Irans rank in the world, by QuantityRank

(2008)

1Pistachios Berries Stone fruit

2DatesApricots

3Cucumbers &Source : FAOSTAT,2011

Watermelons

Almonds

Other melons

Cherries

17

gherkins

Irans rank in the world, by QuantityRank Commodity Fruit Fresh Nes Sheep Meat Quinces Apples Walnuts, with shell Anise, badian, fennel, corian. Wool, greasy Figs Eggplants (aubergines) Sour cherries Lemons and limes Chicken Meat Pumpkins, squash and gourds Peaches and nectarines Buffalo milk, whole, fresh Silk-worm cocoons, reelable Onions, dry Rank Commodity

(2008)

7

4

5

8

10

6

Oranges Tomatoes Kiwi fruit Sheep milk, whole, fresh Goat Meat Spices Plums and sloes Spinach Goat milk, whole, fresh Hazelnuts, with shell Chick peas Geese Meat Lentils Persimmons18

Source : FAOSTAT,2011

Irans rank in the world, by valueRank

(2008)

1Pistachios Berries

2DatesApricots Other melons (inc.cantaloupes)

319

WatermelonsSource : FAOSTAT,2011

Cucumbers & gherkins

Almonds

Cherries

Irans rank in the world, by valueRank Commodity Sheep Meat Anise, badian, fennel, corian. Walnuts, with shell Apples Fruit Fresh Nes Wool, greasy Silk-worm cocoons, reelable Sour cherries Figs Peaches and nectarines Onions, dry Lemons and limes Sheep milk, whole, fresh Chicken Meat Rank

(2008)

4

7

5

8

6

10

Commodity Hazelnuts, with shell Pumpkins, squash and gourds Tomatoes Oranges Plums and sloes Kiwi fruit Buffalo milk, whole, fresh Goat Meat Spices, nes Lentils Goat milk, whole, fresh Chick peas Persimmons

20


International Wheat markets21

Source: USDA,2011

Wheat consumption in the worldApproximate share of wheat consumption going to different uses wheat 2005/06 2006/07 2007/08 2008/09 2009/10 Food 70% 72% 73 70% 70% Feed 18% 16% 14% 17% 16% Industrial 2% 2% 2% 2% 2% Befouls 0% 0% 1% 1% 1% Other 5 10% 9% 11% 11% 11%

22

Source: USDA,2011

Top Wheat producer-Country(2008)Rank1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

CountryChina India USA Russia France Canada Germany Ukraine Australia Pakistan Turkey United Kingdom Kazakhstan Poland Italy Argentina Egypt Iran Romania Spain

Production (MT)112.46 78.57 68.02 63.77 39.01 28.61 25.99 25.89 21.42 20.96 17.78 17.23 12.54 9.27 8.86 8.51 7.98 7.96 7.18 6.71

% world production16.5 11.5 10.0 9.3 5.7 4.2 3.8 3.8 3.1 3.1 2.6 2.5 1.8 1.4 1.3 1.2 1.2 1.2 1.1 1.0

23


International wheat priceYear 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 Argentina, Trigo FOB US, Hard Red, FOB 61.20 67.42 54.73 59.51 62.29 62.99 64.58 65.83 66.05 62.78 70.18 58.44 54.47 54.84 59.10 61.74 70.98 69.79 100.70 137.93 166.57 181.08 144.29 151.17 127.10 134.50 99.30 104.83 128.50 130.92 156.75 163.33 205.83 176.00 190.92 177.67 167.08 161.50 139.50 158.08 136.17 153.33 109.33 137.83 88.50 114.92 Year 1987 1988 1989 1990 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Argentina, Trigo FOB US, Hard Red, FOB 87.25 114.50 133.00 146.42 151.57 170.08 106.36 136.78 120.50 128.87 121.98 151.13 127.84 141.77 166.73 150.95 189.53 178.77 151.90 208.26 118.87 160.83 114.80 129.44 119.64 115.20 119.00 119.18 129.40 129.89 151.65 151.45 137.48 150.38 130.57 160.62 24 153.75 158.32 250.17 200.42 294.26 269.17 219.01 343.20 252.17 235.29

Source : Unctad, 2011

International wheat price

Source : UNCTAD, 2011

25

Wheat is most important and strategic crop In Iran

26

Wheat consumption in Iran Wheat is one of the important agricultural crops in Iran andconsidered as critical source of food.

Wheat consumption per head is 400 grams per day. 80% of wheat consumption in Iran is in form of bread (localbread specially) 160 kg per head, per year.

Wheat provides 1,500 kcal per capita per day in Iran.

27

Source : Ortiz,2008

Irans Top production-Quantity(2008)Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Source : FAOSTAT,2011

CommodityWheat Cow milk, whole, fresh Tomatoes Potatoes Sugar cane Apples Oranges Watermelons Rice, paddy Onions, dry Sugar beet Grapes Fruit Fresh Vegetables fresh Chicken Meat Cucumbers and gherkins Other melons Dates Hen eggs, in shell Lemons and limes

Production (MT)7.956 6.450 4.826 4.706 3.097 2.718 2.619 2.566 2.184 1.849 1.829 1.739 1.661 1.577 1.570 1.459 1.332 1.006 0.727 0.694

28

Irans Top production-value (2008)Rank

CommodityChicken Meat Cow milk, whole, fresh Tomatoes Grapes Wheat Apples Sheep Meat Cattle Meat Potatoes Pistachios Hen eggs, in shell Oranges Onions, dry Vegetables fresh Dates Watermelons Cucumbers and gherkins Fruit Fresh Other melons Walnuts, with shell

Value ($M)1830.4 1715.3 1143.5 807.0 800.5 780.9 772.6 744.1 660.4 635.5 557.4 460.4 340.8 328.4 315.5 267.6 246.2 223.3 218.1 208.5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Source : FAOSTAT,2011

29

Wheat yield in Iran


30

Wheat yield growth rate in IranOnly Pakistan and Iran have average growth in productivity above 2% for the entire 40 years from 1966 to 2005. strong performance of wheat production in Iran is characterized by effective domestic measures to enhance wheat production through a combination of utilizing better cultivars, improved agronomy and strong agricultural support policies .Wheat yield growth rate (1951-2005).

31

Source : Ortiz, 2008

Is Wheat most important and strategic crop in Iran? Absolutely

YESBut Is Wheat production efficient in Iran?

32

Eficiency

33

EfficiencyThe concept of efficiency and the distinction betweenTechnical and Allocative efficiency was formally defined by:

Koopmans (1951) Debreu (1951) and Farrell (1957) proposed a particularmeasure of technical efficiency.

The properties of the Debreu-Farrell and other measureshas been studied extensively with important contributions by:

Russell (1985, 1990), Fare , Grosskopf and Lovell (1994) and many others.Source: Fare et al., 2007

34

Different types of Efficiency

Technical efficiency Allocative efficiency Economics efficiency35

Technical efficiencyTechnical efficiency is the ability of the farm to obtain themaximum possible output with a specified endowment of inputs given the technology and environmental conditions surrounding the farm.

In other words, given current technology, there is nowastage of inputs whatsoever in producing the given quantity of output

Managerial practices and the scale or size of operationsaffect technical efficiency, which is not based on prices and costs.Source: Fare et al., 200736

Allocative efficiencylevel of output and set of input prices, are chosen to minimize the cost of production, assuming that the farm being examined is already fully technically efficient.

Allocative efficiency refers to whether inputs, for a given

A farm that is operating at best practice in producingterms could still be Allocatively inefficient.

minimize its costs, given relative input prices.

because it is not using inputs in the proportions which37

Source: Fare et al., 2007

Economic efficiencyof Technical and Allocative efficiency.

Economic efficiency refers to the combination

both technically and allocatively efficient.

A farm will only be Economic efficient if it is

product of the technical and allocative efficiency scores (expressed as a percentage)

Economic efficiency is calculated as the

38

Measurement Approaches1. Input-Orientated By how much can input quantities beproportionally reduced without changing the output quantities produced?

2. Output-Orientated By how much can output quantities beproportionally expanded without altering the input quantities used?Source: Coelli et al., 200539

Methods for measurement1. Least-squares econometric production models 2. Stochastic frontiers (SFA) 3. Data envelopment analysis (DEA)40

Source: Coelli et al., 2005

LS econometric production model1. Most often applied to aggregate time-series data. 2. Provides measures of technical change and/or TFP. 3. Assumes all farms are technically efficient. 4. Plots an average curve through the sample points. 5. Individual farms efficiency compared with an average level of performance in the sample rather than an estimate of best practice within the sample41

These led to attempts to approximate best practice in the sample by estimating frontiers.Source: Coelli et al., 2005

SFA & DEA1. DEA and SFA are most often applied to data on a sample offarms (at one point in time) 2. DEA & SFA provide measures of relative efficiency among farms. 3. DEA & SFA do not assume that all farms are technically efficient 4. DEA & SFA can be used to measure both technical change and efficiency change42


SFA & DEA DEA- The deterministic, nonparametric approach that developed out of mathematical programming to measure efficiency is known as Data envelopment analysis (DEA) SFA- the parametric approach which uses a stochastic production, cost, or profit function to estimate efficiency is called the stochastic frontier approach (SFA).43


stochastic frontier analysis (SFA) 1. The estimation of production frontiers has proceeded along two general paths: Deterministic frontier which forces all observations to be on or below the production frontier so that all deviations from the frontier are attributed to inefficiency. Stochastic frontier - where disturbance term is composed of two parts, one symmetric and the other, one-sided;

2.

a) The symmetric component captures the random effects outside the control of the decision-maker including the statistical noise contained in every empirical relationship. b) The one-sided component captures deviation from the frontier due to inefficiency.Source: Coelli et al., 2005

44

stochastic frontier analysis (SFA)Aigner and Chu (1968) who considered a Cobb-Douglas production frontier of the form:

Lnqi=xi - i

i =1, ,I,

qi : output of the ith farm Xi : a Kx1 vector containing the logarithms of inputs : vector of unknown parameters : non-negative random variable associated with technical inefficiency.

45


stochastic frontier analysis (SFA)

Lnqi=xi - i The production frontier is deterministic insofar as is bounded from above by the non-stochastic (i.e., deterministic) quantity exp(xi ).

A problem with frontiers of this type (and with the DEA frontier) is that no account is taken of measurement errors and other sources of statistical noise. all deviations from the frontier are assumed to be the result of technical inefficiency. an obvious solution to the problem is to introduce another random variable representing statistical noise.46

The resulting frontier is known as a stochastic production frontier.


That statistical noise arises from the inadvertent omission of relevant variables from the vector x

stochastic frontier analysis (SFA)Aigner, Lovell and Schmidt (1977) and Meeusen and van den Broeck (1977) independently proposed the stochastic frontier production function model of the form:

Lnqi=xi + Vi - ia symmetric random error, Vi added to account for statistical noise. statistical noise arises from: 1. the inadvertent omission of relevant variables from the vector xi 2. as well as from measurement errors and approximation errors associated with the choice of functional form.Source: Coelli et al., 2005

47

That statistical noise arises from the inadvertent omission of relevant variables from the vector x +v

stochastic frontier analysis (SFA)The model ;

)

Lnqi=xi + Vi - i

is called a stochastic frontier production function because the output values are bounded from above by the stochastic (i.e., random) variable exp (xi + Vi). The random error Vi can be positive or negative and so the stochastic frontier outputs vary about the deterministic part of the model, exp (xi ).48


stochastic frontier analysis (SFA)Suppose farms produce the output qi using only one input, Xi In this case, a Cobb-Douglas stochastic frontier model takes the form:

lnqi = ( or or

0

+ 1lnxi + Vi - i)0

qi = exp ( qi = exp (

+ 1lnxi + Vi - i)

0

+ 1lnxi) * exp(Vi) * exp(-i)Noise49

Deterministic component

inefficiency


stochastic frontier analysis (SFA)) Farm A uses the input level XA to produce the output q*A Fam B uses the input level XB to produce the output q*B If there were no inefficiency effects (i.e., if A = 0 and B = 0) then the so-called frontier outputs would be: Deterministic frontier

qi

Af q*A = exp ( q*B = exp ( qB = exp (0 0 0

qi = exp (

0

+ 1lnxi)

+ 1lnxA + VA) + 1lnxB + VB) Bf Bo

+ 1lnxB + VB - B)

qA = exp (

0

+ 1lnxA + VA - A)

Ao

50

Af & Bf = frontier Ao & Bo = observedSource: Coelli et al., 2005

0

xA

xB

Xi

stochastic frontier analysis (SFA)+v

the frontier )output for farm A lies above the deterministic part of the production frontier only because the noise effect is positive (i.e., VA > 0). the frontier output for farm B lies below the deterministic part of the frontier because the noise effect is negative (i.e., VB

Technical Efficiency of Wheat Production in Iran

Documents

Transcript of Technical Efficiency of Wheat Production in Iran