Estimating and analysing cost efficiency of sawmill industries in Nigeria: A stochastic frontier approach

Abstract

Purpose

The purpose of this paper is to examine cost efficiency and its determinants in Nigerian sawmill industries.

Design/methodology/approach

A stochastic frontier model is employed on a total of 160 mills randomly selected across five states in south‐western Nigeria in 2006.

Findings

The results show an estimated average cost efficiency of 1.262. This suggests that an average mill incurs about 26 per cent costs above the frontier cost when processing planks from logs. Further analysis indicates that a significant level of cost ineffisciency is present in Nigeria's sawmilling industry. Analysis of determinants of cost efficiency reveals that more years of education, experience, age, and level of capital investment reduce cost inefficiencies between 7 and 16 per cent. Sawmill operation is found to be associated with economies of scale in the study area.

Originality/value

The paper contributes to existing studies on the efficiency of sawmill industries in Nigeria by taking a holistic assessment of the industry from a cost perspective.

Citation

Ogundari, K. (2010), "Estimating and analysing cost efficiency of sawmill industries in Nigeria: A stochastic frontier approach", China Agricultural Economic Review, Vol. 2 No. 4, pp. 420-432. https://doi.org/10.1108/17561371011097731