Profit efficiency and farm productivity: Implications for adoption of dairy best practices among milk producers in Rwanda

The dairy best practices (DBP) scheme that provides a set of practices and standards for proper production and handling of raw milk was issued by the Rwandan government. While this scheme has improved the quality of milk, its effects on farm productivity remain unclear. In this paper, we use a translog production frontier and inefficiency effects model to estimate the profit efficiency and determinants of profit inefficiency among milk producers in Rwanda with a focus on the effect of DBP standards. We find that milk production in Rwanda is profitable as farmers get a gross margin of 487,098 Rwf per household and 149,166 Rwf per lactating cow while the revenues almost double the cost incurred. Furthermore, we find a profit efficiency score of 87% implying that farmers are not reaching the maximum possible profit. While investing in milk production is beneficial, adhering to DBP yields more profits (p<0.01) and increases the profit efficiency by 32% (p<0.05). Forage and feed supplements as well as parasite control are key inputs that play a significant role in increasing the profit efficiency. Our results also show that profit efficiency is positively influenced by male-headed households (p<0.01) while cow parity and the proportion of family labour have a negative effect, confirming the possibility of disguised unemployment problem. we recommend government intervention in the enhancement of access to quality inputs together with formulation of policies that promote the adoption of DBP standards among smallholder dairy farmers.