doi:10.

1017/S0043933910000541

Technical, allocative and economic

efficiency of commercial poultry farms in
Bangladesh
I.A. BEGUM1*, J. BUYSSE2, M.J. ALAM3 and G. VAN HUYLENBROECK2
1
Department of Agricultural Economics, Ghent University, Belgium and
Department of Agricultural Economics, Bangladesh Agricultural University,
Bangladesh; 2Department of Agricultural Economics, Ghent University, Belgium;
3
Department of Agricultural Economics, Ghent University, Belgium and
Department of Agribusiness and Marketing, Bangladesh Agricultural University,
Bangladesh
*Corresponding author: ishameen@yahoo.com

The growth rate of poultry meat production is not sufficient to satisfy the per capita
meat requirement in Bangladesh. Therefore ways to improve the efficiency of the
existing production technologies must be investigated if these demands are to be
met. This review examines ways this could be achieved. The technical, allocative and
economic efficiency of poultry meat production based on farm level survey data was
estimated using the Data Envelopment Analysis (DEA) approach. The study used
100 commercial poultry farms in Bangladesh for the calendar year of 2007. The
results demonstrated that there is substantial technical, allocative and economic
inefficiency in poultry production in Bangladesh. Under the constant return to
scale (CRS) specification, technical, allocative and economic efficiencies were 88,
70 and 72% respectively, whereas under the variable returns to scale (VRS)
specification those efficiencies were 89, 73, 66% respectively. Thus, the results
indicate that efficiencies varied substantially across the sample farms. In order to
attempt to explain some of these variations, the efficiency scores were regressed
based on farm specific variables such as the farmer's age, education, experience,
total landholdings, poultry farm size and level of training using a Tobit regression
framework. The estimated DEA model identified that there is great potential for
increasing poultry farm efficiency using the existing level of inputs and resources
more efficiently. Specifically it showed that the level of education and training the
farmer receives are two of the most important factors contributing to the variations
in efficiency seen during this study. These research findings are valuable to policy
makers and extension workers in order to guide policies towards increasing
efficiency.

Keywords: economic efficiency; data envelopment analysis (DEA); poultry farms;

Bangladesh

© World's Poultry Science Association 2010

World's Poultry Science Journal, Vol. 66, September 2010
Received for publication September 18, 2009
Accepted for publication November 19, 2009 465
Bangladesh poultry farms: I.A. Begum et al.

Introduction
The economic growth and development of Bangladesh largely depends on the
performance of the agricultural sector in which livestock plays a significant role.
Livestock contributes approximately 2.95% to the country's gross domestic product
(GDP) and 17.5% to the agricultural GDP. Approximately 25% of the labour force is
directly and 50% is indirectly engaged in this sector (BBS, 2006). Of the livestock sector,
the poultry industry has considerable potential for generating income, reducing
malnutrition, offering employment opportunities and alleviating poverty. This is
especially true for small farmers. Poultry farming offers certain advantages over other
agricultural farming such as crops, fisheries and agro-forestry. Specifically it requires less
land, it is relatively less influenced by the seasons and requires a low investment
compared to other livestock farming (e.g. dairy and beef). Poultry farming in
Bangladesh can be broadly divided into two categories; traditional rural backyard
farming and commercial farming. Commercial farming began in the early 1980s. The
government's poultry development policy undertaken in the 1990s then augmented
commercial poultry production favourably, which in turn resulted in a spectacular
increase in the number of poultry farms. The production growth rate was only 0.7%
per annum during the period of 1970 to 1980 but after this time it increased significantly.
In fact during the period of 1980 to 1990 and 1990 to 2000 the growth rate was 6 and 8%
per year respectively (Begum, 2008). However, until recently 66% of all poultry meat
consumption has come from commercial poultry farms (Dolberg, 2008). Despite poultry
meat production increasing significantly during the decades of the 1990s and 2000s, it
has still not been sufficient to meet the domestic requirement (Figure 1). As this shows
the per capita meat availability in Bangladesh still needs to be more than doubled to
satisfy the current meat demand of 7.67 kg per year.

Figure 1 Meat requirements, availability and deficits in Bangladesh (FAO, 2008).

Research has been carried out on commercial poultry production however there is a
dearth of information on the efficiency of commercial poultry farms in Bangladesh. In
1995 Alam presented the existing status and future potential of the poultry sector in

466 World's Poultry Science Journal, Vol. 66, September 2010

 Bangladesh poultry farms: I.A. Begum et al.

Bangladesh however this information is now more than a decade old and many structural
changes have taken place in this time. Following this Mitchell (1997) showed the
consumption and marketing aspects of poultry products in Bangladesh. Other research
conducted by Karim and Mainuddin (1983), Ahmed (1985), Haque (1985), Islam and
Shahidullah (1989), Ukil and Paul (1992), Bhuiyan (1999), Uddin (1999) and Begum et
al. (2005) provides important information relating to commercial poultry farms in
Bangladesh. All of these studies have indicated that commercial poultry farming in
Bangladesh faces many problems, namely lack of capital, inadequate knowledge of
poultry rearing, outbreak of diseases, less availability and higher prices of inputs (e.g.
feed, day old chicks, vaccines and medicines), inadequate institutional credit and a lack
of guaranteed and profitable markets for their output. Despite all of these studies, none of
them have dealt the efficiency estimation and the factors associated with it.
Under the circumstances of the higher meat demand than availability, one can
rationally advocate that the commercial poultry production must be increased to meet
the requirements. However the logical question arises, how production can be increased
given the constraints of the resources available to poor farmers in Bangladesh? One of the
alternatives may therefore be to examine the efficiency level of the commercial farms in
Bangladesh and determine the factors responsible for producing varying efficiency levels.
This type of information would help farmers and policy makers to formulate policies on
whether the commercial poultry farms in Bangladesh should be expanded horizontally by
investing scarce resources, given the resources constraints, or whether they can save
resources from the current production technology. This would mean it would be possible
to expand production with the cost savings from saved resources. Therefore to do this,
the farms’ efficiency must be measured and the utilization of resources of examined.
Thus, the measurement of farm-level technical, allocative and economic efficiency in
commercial poultry production in Bangladesh is the first aim of this paper. Following this
the efficiency differentials across farms are explained. To fulfil the aims of the study, data
envelopment analysis (DEA) was used to measure the efficiency of the commercial
poultry farms. Following this farm specific variables such as a farmer's age,
education, experience, total landholdings, poultry farm size, training participating were
used in a Tobit regression framework to explain the variations in the measured
inefficiencies seen.
There are many studies in the literature (Charnes et al., 1978; Manos and
Psychoudakis, 1997; Anderson et al., 2002; Thiam et al., 2001; Alene and Zeller,
2005) that have measured the efficiency of various enterprises. However, only a few
studies (Sharif and Dar, 1996, Wadud and White, 2000, Coelli et al., 2002, Rahman,
2003, Kamruzzaman et al., 2006) have estimated the efficiency of rice, wheat and
agriculture (as aggregate) in Bangladesh and none of these studies have analyzed
commercial poultry production efficiency. Therefore, the present study is unique in
the sense that the study measures the commercial poultry production efficiency for the
first time. The study also differs from the research previously conducted on the efficiency
of other enterprises in terms of the state of the art methodology used and the
identification of the factors responsible for the differences in efficiency seen.

Model specification
Efficiency is the widely used concept in economics, particularly in managerial and
production economics. Efficiency is expressed by summing up the technical and
allocative efficiencies. Technical efficiency is the ability of the farmers to produce the
maximum output from a given level of inputs, while allocative efficiency measures the

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Bangladesh poultry farms: I.A. Begum et al.

ability of the farmers to use inputs in optimal proportions, given input prices. There are
two widely used efficiency estimation methods; the non-parametric method data
envelopment analysis (DEA) and parametric stochastic frontier analysis (SFA). The
stochastic frontier approach was proposed by Aigner et al. (1977) and Meeusen and
Van den Broeck (1977). The framework for the non-parametric method DEA was
initiated by Farrell in 1957 and re-formulated as a mathematical programming
problem by Charnes et al. in 1978. Comprehensive reviews of these two
methodologies have been conducted by academics including Lovell (1993), Ali and
Seiford (1993), Coelli (1995), Bauer (1990), Fried et al. (1993) and Bravo-Ureta and
Pinheiro (1993).
DEA is a systematic approach widely used in management science and economics, in
which the relationships between all inputs and outputs are taken into account
simultaneously (Yusuf and Malomo, 2007). The main advantage of the DEA approach
over SFA is that the former is a deterministic approach not requiring parametric
specification of a functional form to form the frontier but the latter is not. This is the
reason why this study used the data envelopment analysis (DEA) to estimate the farms’
efficiency.
A poultry producing unit (a farm) is defined as a Decision Making Unit (DMU). DEA
calculates the efficiency and efficiency gap (if any) of each farm from their best practices,
based on actual inputs used and outputs produced. DMUs on the efficiency frontier will
have an efficiency score equal to 1 and are said to be efficient. DMUs that are not on the
frontier have an efficiency score less than one and are said to be inefficient. Thus, this
method allows the relative efficiency of a farm and its position in relation to the optimal
situation to be determined.
One of the options in DEA is a choice between constant returns to scale (CRS) and
variable returns to scale (VRS). CRS assumes that all DMUs are operating at the optimal
scale. Thus, it is assumed that large poultry farms are just as efficient as small ones in
converting inputs to outputs. The main criticism of the CRS assumption is that in reality
it is unlikely that all farms run their production activities optimally, especially in
developing countries due to their heterogeneous farms conditions. Therefore VRS
overcomes this problem and the specifications of VRS can permit the calculation of
efficiency scores devoid of scale efficiency effects as VRS does not assume like CRS. In
1984 Banker et al. suggested changing from using the CRS DEA model to using the
VRS DEA model. The VRS specification allows the calculation of technical efficiency
(TE), allocative efficiency (AE) and economic efficiency (EE) without the scale
efficiency (SE) effects (Coelli, 1996). In this study the efficiency values using both
the CRS and VRS techniques for DEA were determined so the values produced could
be compared.
Another consideration to make is the choice between input-oriented and output-
oriented DEA models. The difference between these is whether the objectives are to
continue using the same amount of inputs while producing more outputs (which is called
output-oriented DEA) or to produce the same amount of output by using fewer inputs
(input-oriented DEA). This choice ultimately depends on the country's resources and
therefore this choice will vary from country to country and possibly even region to region
within a country. Bangladesh is one of the least developing countries, therefore it is
logical to use input-oriented DEA rather than output-oriented DEA so scarce resources
can be saved and these resources can be used more efficiently to produce the same
output. Subsequently the input-oriented DEA model was utilized in this study using both
CRS and VRS specifications to estimate the technical, allocative and economic efficiency
of the poultry farmers.
A number of multiple-input, single-output production units (the poultry farms) were

468 World's Poultry Science Journal, Vol. 66, September 2010

 Bangladesh poultry farms: I.A. Begum et al.

evaluated, with the individual farms being referred to as individual Decision Making Unit
(DMU). Each DMU used varying quantities of inputs to produce different levels of
output (poultry meat). Assuming that i-th farm uses x¡ = (xki) of inputs (k = 1, 2, 3)
and produces a single output y¡. The (k x n) input matrix is denoted by X and the (n x 1)
output vector is denoted by Y for all n farms, where n is 100. The technical efficiency
(TE) can then be estimated solving the following linear programming (LP) based DEA
model:
Minimise φi l, CRS; subject to -yi + Yω ≥ 0, φ i l, CRS xi - Xω ≥ 0, ω≥0 (1)
φ i l, CRS, ω
Here, the TE score for the i-th farm is a scalar, φi I,CRS (φi I,CRS ≤ 1 ). The VRS DEA
frontier can then be formulated by including the convexity constraint, Ω′ w= 1, in (1),
where Ω is an (n x l) vector of ones:
Minimise pixi ; subject to -yi + Yω ≥ 0, xi-Xω ≥ 0, Ω′ω =1, ω≥0 (2)
x i, ω
Where pi stands for the vector of input prices for the i-th farm and the solution vector
x*¡ is the cost-minimizing input vector, given the prices of the inputs and the levels of
output yi. The economic efficiency (EE) of the i-th farm is then calculated using the
equation

ሺ‫݌‬௜ ‫ݔ‬௜ ‫ כ‬/‫݌‬௜ ‫ݔ‬௜ ሻ

that is the ratio of minimum cost to observed cost. Finally the allocative efficiency (AE)
can be estimated using AE = EE/TE.
A comparison of both the CRS and VRS scores can then provide information on scale
efficiency (SE). Therefore the scale efficiency (SE) index for the poultry farm is
estimated using the equation, SE

ሺ߮௜ ூǡ஼ோௌ Ȁ߮௜ ூǡ௏ோௌ ሻ

because the efficiency scores estimated under the VRS DEA frontier are equal to or
greater than those calculated under the CRS DEA. SE=1 implies scale efficiency and SE
< 1 implies scale inefficiency. Scale inefficiency can be either increasing returns to scale
(IRS) or decreasing returns to scale (DRS). If this sum is equal to one, it would be then
called constant returns to scale (optimal scale), if it is less than one then increasing
returns to scale (sub-optimal scale) and if it is greater than one then decreasing returns to
scale (super-optimal scale).

Data and field survey

The analysis in this study was based primarily on the data collected through a
comprehensive field survey of 100 commercial farms. Secondary data was also used
where it was required. The data was compiled in Excel and then analyzed using a DEA-
Solver, e.g. Win4DEAP and LIMDEP.
The Gazipur district was selected as the study area because it was declared ‘poultry
region’ by the government of Bangladesh and subsequently has a high concentration of
commercial poultry farms. The sample farms were selected randomly from Kaliakoir and
Sripur Thanas (small administrative area) under Gazipur district. The period of
investigation covered one calendar year from January 2007 to December 2007 but the
data was collected during the period of February 2008 to April 2008.

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Bangladesh poultry farms: I.A. Begum et al.

Efficiency measurement
The main variable costs of poultry farms in Bangladesh are the cost of day-old chicks,
feed, labour, vaccines and medicines, transportation, litter, equipment and housing.
Therefore, to estimate the technical, allocative and economic efficiencies, the
following variables costs were used as inputs: i) human labour (in man-days) and
wage rate (Taka/man-day), ii) day-old chicks (in cumulative weight) and price, and
iii) poultry feed (in kilograms) and price of manufactured or readymade poultry feed
(Taka/kilogram). These 3 variables were used because it was decided these are the main
variable costs and they cover 75 to 80% of the total cost (Begum et al., 2005; Ukil and
Paul, 1992; Bhuiyan, 2003; Uddin, 1999). The other variable costs including medicine,
litter, polythene, transportation and depreciation were reported at the aggregate basis but
not at the disaggregate basis, therefore neither by volume nor quantity. Output data was
reported on the basis of the cumulative weight of the birds sold. The frequency
distribution of the efficiency estimates obtained from the DEA frontier and their
summary statistics are presented in Table 1. Given the large variability in the
computed efficiency (lowest efficiency score of 0.42 and highest score of 1.00),
efficiency scores were clustered into six groups; 0.00–0.50, 0.51-0.60, 0.61-0.70,
0.71- 0.80, 0.81–0.90, and 0.91–1.00 to explain their relative position from the
highest efficiency frontier 1.

Table 1 Frequency distribution of efficiency estimates from the DEA models.

Efficiency index (%) DEA frontier

Number of farms

CRS VRS

TE AE EE TE AE EE

0-50 0 4 15 0 3 6
51-60 0 18 38 0 10 30
61-70 0 35 29 0 32 35
71-80 14 25 13 8 29 20
81-90 44 9 2 45 18 4
91-100 42 9 3 47 8 5
Mean 0.88 0.70 0.62 0.89 0.73 0.66
Standard deviation 0.06 0.12 0.11 0.06 0.12 0.12
Maximum 1 1 1 1 1 1
Minimum 0.73 0.43 0.42 0.75 0.45 0.45

The estimated mean values of technical, allocative and economic efficiency were 88,
70, and 62% for CRS DEA frontier respectively and 89, 73, and 66% for VRS DEA
frontier respectively. Therefore the results of the DEA reveal substantial inefficiencies in
commercial poultry production in Bangladesh when both the CRS and VRS assumptions
are used. Subsequently there is real need to improve the efficiency of poultry production
in Bangladesh by reducing the costs of production whilst obtaining the same level of
output.
In terms of the economics of scale, 68 farms were characterized by increasing return to
scale (IRS), 19 farms had constant return to scale (CRS) and 13 farms were characterized
by decreasing return to scale (DRS) (Table 2).

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 Bangladesh poultry farms: I.A. Begum et al.

Table 2 Optimal, sub-optimal and super-optimal outputs for poultry farms studied.

Scale Number of farms Mean output Output range

Optimal 19 16395.26 7550-35520

Sub-optimal 68 9633.65 5700-19535
Super-optimal 13 15612.15 12330-20390

Constant return to scale is expected for farms with an output level equal to mean output
(Silberberg, 1990). Therefore one would expect returns to scale to be increasing for farms
with a relatively low output and decreasing for farms with a relatively high output using
the same technology. The mean output at the optimum scale is larger than that at the
super-optimal scale (Table 2). These results indicate that the optimal output levels overlap
greatly with the sub-optimal and super-optimal output values. Given our sample size,
such a result may indicate that the farms with the largest output operate at the optimal
scale.

Identifying factors of efficiency using the Tobit model

Technical, allocative and economic efficiency scores obtained using both the CRS and
VRS DEA models only have a partial use for policy and management purposes if
empirical studies do not investigate the factors affecting efficiency. A relevant
research question then arises what factors appear to be associated with inefficiency?
The variables most often used in the literature (Wadud and White, 2000, Coelli et al.,
2002, Kamruzzaman et al., 2006; Kalirajan and Shand, 1989; Bravo-Ureta and Evenson,
1994; Parikh et al., 1995; Amara et al., 1999; Sharma et al., 1999; Wilson et al., 2001) to
explain the varying efficiency are the age of the farmer, educational status and experience
of the farmer, farm size and the use of training and extension services. The factors used in
this study to identify the variables influencing the farms’ efficiency using the Tobit
regression model consisted mainly of the farm's human variables; namely the farmer's
age, educational background or schooling (number of years), experience and training
received. However, other farm characteristics such as poultry farm size, total farm size
and other resource endowments were also studied.
The Tobit model was used for this research because the dependent variable ‘efficiency’
is a censored variable with an upper limit of one (Lockheed et al., 1981). This model is
employed to estimate factors associated with efficiency with the help of LIMDEP
statistical software. The dependent variable in this model is the initial IEi calculated
using the CRS and VRS DEA model. Three separate models were estimated for three
different efficiency scores obtained from the CRS and VRS DEA. The basic model used
was:
IEi = α0 + α1AG + α2ED + α3FS + α4PFS + α5Tr + α6Exp + ε
where:
IEi is the estimated technical, allocative and economic efficiency of the poultry farms
AG is the age of the farmer (years)
ED is the education of the farmer (years)
FS is the total land holdings (decimal)
PFS is the poultry farm size dummy; the value 1 is if more than 1500 birds in each
batch and the value 0 is for others
Tr is the training on poultry farming dummy; 1 is if farmers received, 0 if not received
Exp is the experience the farmer has in poultry farming (years)

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Bangladesh poultry farms: I.A. Begum et al.

ε is the error term which follows Gaussian iid

The results of the Tobit regression are presented in Table 3 below.
Table 3 Tobit regression analysis of factors associated with efficiency.

Factors TE AE EE

DEA frontiers
Constant return to scale (CRS)
Constant 0.8120*** 0.4820*** 0.3576***
Age 0.0002 -0.0012 -0.0009
Education 0.0075*** -0.0011 0.0046***
Training 0. 0497*** -0.0167 0.0220***
Total landholding -0.00002 0.0001** 0.0001
Experience 0.0014 0.0408*** 0.0362***
Poultry farm size -0.0361*** 0.0163 -0.0115
Log likelihood 150.43 154.08 154.26

Variable return to scale (VRS)

Constant 0.8268*** 0.5127*** 0.3896***
Age 0.0001 -0.0008 -0.0006
Education 0.0070*** -0.0007 0.0048**
Training 0.0394*** -0.0196 0.0133
Total landholdings -0.0001 0.0001** 0.00001
Experience 0.0008 0.0390*** 0.0374***
Poultry farm size -0.0503*** -0.0084 -0.0464***
Log likelihood 146.88 150.64 136.76
*** **
Note: , indicates 1%, 5% level of significance respectively

The estimated model showed good explanatory power. The coefficients of age are
positive in explaining TE and negative in AE and EE, implying older farmers are
technically more efficient than younger farmers but in the case of AE and EE, older
farmers are less efficient than younger farmers. However this parameter was not
significantly different from zero in any of the models.
Education is used as a proxy for managerial input and a higher level of education may
lead to better assessment of issues and better farming decisions. Overall the educational
level of the people engaged in poultry farming activities in Bangladesh is low. Therefore
the level of education is one of the major constraints which could impede the adoption of
new technologies and the farmers’ education may be one of the most important factors
for explaining a farms` efficiency. As expected, the results showed that education was
positively and significantly related to a farm's TE and EE. This may be a result of the
more educated farmers’ better skills, access to information and good farm planning. The
negative sign of the education coefficient for farms in AE is surprising, however, the
parameter is not significantly different from zero.
Training on aspects of poultry farming contributes significantly to a higher level of
efficiency. Poultry farmers should have sound technical knowledge, however in
Bangladesh most of the poultry farmers have not been properly trained. The results
indicate that training had a positive and significant effect on the poultry farm's TE
and EE. Therefore the level of TE can be increased by improving farm management
through training. The experience dummy is significant and positive in both in allocative
and economic efficiency and in both the CRS and VRS approaches. A possible
explanation is that experienced farmers have more knowledge of their resource
management and practices, which enables them to utilize the resources more
efficiently and effectively.

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 Bangladesh poultry farms: I.A. Begum et al.

The production efficiency may also be related to the farmers’ total landholdings
because owned land is the proxy of access to credit and therefore poultry farmers
who own land can obtain a bank loan with the collateral ‘land or house’. The results
indicated that the amount of land owned is positively and significantly associated with the
farm's allocative efficiency and therefore the more land owned, the greater ability to
access credit which in turn influences the efficiency level. The actual size of the poultry
farm is also an important variable in explaining varying efficiency. It was discovered that
farm size negatively influences efficiency. In the CRS, the poultry farm size contributes
negatively to the technical efficiency but in the VRS, it contributes the same both to the
technical and economic efficiency. This implies that on average, small size farms are
more efficient than large farms. This result is not surprising but it is interesting for the
semi labour-intensive Bangladesh poultry sector. Presumably the observed higher
efficiency of the small farms is due to the extensive use of family labour.

Conclusions
Measuring efficiency in agricultural production activities has important implications in
designing policies that foster agricultural production. This study used data envelopment
analysis (DEA) to estimate the technical, allocative and economic efficiency of
commercial poultry farms in Bangladesh. One hundred commercial poultry farms
located in the Gazipur district (a declared ‘poultry region’) were surveyed. The results
of the efficiency estimate imply that a considerable amount of technical, allocative and
economic inefficiency exists among the sample farms. Under the constant return to scale
(CRS) and the variable returns to scale (VRS) specifications, technical, allocative and
economic efficiencies were 88, 70, 62 and 89, 73, 66% respectively, meaning that the
sample farms were 12, 30, 38% and 11, 27, 34% below efficient respectively. The results
also show that the poultry farms appear to be dominantly increasing returns to scale. The
farmers could increase their poultry production if they were to operate at full technical,
allocative and economic efficiency levels, given the existing production technology and
resource constraints.
Tobit regression models were estimated to determine the factors contributing to the
varying efficiency levels seen. Statistically significant factors identified as being
associated with efficiency in this study were educational background, experience,
training, land holding size and farm size. Working with the existing technology, the
sample farmers could attempt to enhance production substantially if they could produce
on the efficient frontier. Based on the outcomes of this study it is recommended that the
level of education and training poultry farmers in Bangladesh receive needs to be
improved significantly so higher efficiency levels can be achieved in this industry.

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