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Abstract

The study examined returns to scale in 371 dairy farms sampled from different districts in East Africa. First, data envelopment analysis (DEA) was applied to obtain three types of returns to scale – constant returns (CRS), variable returns (VRS) and increasing returns to scale (IRS). This revealed that 80 percent of the farms were scale inefficient. We find inverse relationship between scale efficiency and their size (measured in tropical livestock units), implying that the prevailing farm inefficiencies were not due to their small size but other farm resource constraints. Second, econo-metric analysis was conducted to explain differences among the farms across the three cases of returns to scale. Zero-grazing emerged as the most important determinant of farm efficiency. The scale efficiency based model fits the data better than the alternative CRS and VRS based econometric models.

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