Technical Efficiency of Sugar Industry in Sudan: Stochastic Frontier Approach

Abstract

This paper employs Stochastic Frontier Analysis to estimate technical efficiency of major sugar producers in Sudan: Kenana sugar company and Sudan sugar company which owns Sennar, Assalaya, New Halfa, and Al-Genied plants. The production function of sugar output employs two inputs: capital, and labor. The finding of the paper indicate technical inefficiency (distance from optimum production frontier) of Sudan sugar company on average is about 13 percent, implying average output loss of (11,294) tons of sugar per annum for each producer. Estimation results in the paper also indicate kenana sugar company is performing at the highest level of efficiency in the group with only 0.12 percent of inefficiency score. The average output loss due to such technical inefficiency for Kenana company is estimated at 407 tons of sugar per annum. The finding in the paper indicate a major source of inefficiency of Assalya and Al-Genied plants is over staff of employment (or labor productivity decline) as well as under utilization of available capital stock. However, the technical inefficiency of Senar and New Halfa is due to shortage of labor (increasing return to scale) and under utilization of capital stock in the case of New Halfa and over utilization of capital in the case of Senar. Such managerial deficiencies of Sudan sugar company plants may be can be mitigated by reverting to a management style that involve private sector partnership.

Keywords: Stochastic Frontier; Sugar Industry; Technical Efficiency; Sudan