STOCHASTIC FRONTIER APPROACH OF VALUE ADDED MEASURES OF SUGAR PRODUCTION IN BANGLADESH: AN EMPIRICAL ANALYSIS

An attempt has been taken to explore the causes of inefficiency of management of sugar industry in Bangladesh by applying Stochastic Frontier Approach (SFA) that contains three steps of estimation. According to value of output measurement by SFA,  parameter was found with positive values indicating potential production deferred from actual production. The return to scale of the sample was estimated 1.84 implied increasing returns to scale. The parameter (  0 ) of OLS for the sample was found less than that of MLE for the cause of below position of potential output.  (Lambda) was the ratio of variance of industry specific production behaviors 2  (u) to the variance of statistical noise 2  (v). Here that ratio was found 1.69 and 1.11 for the half-normal and truncated normal distribution which indicated that there were impacts due to inefficiency of the management dominated by random disturbances of the sugar industry in Bangladesh. The value of  was estimated 74 percent and 55 percent for half normal and truncated normal indicating 74 percent and 55 percent output in sugar production were due to inefficiency of the management. The parameter (  ) was found negative for both the methods which indicated that the technical efficiency was decreasing over the time. The mean technical efficiency of sample was 54.45 percent and 35.45 percent for the half normal and truncated normal distribution. This further indicated that the management could increase the production level by 45.55 percent and 64.55 percent respectively using same level of inputs. The suggestion and recommendation has been provided to improve managerial skills, increase skilled manpower, introduce higher sucrose content cane, modernization of machineries and reduction of overhead cost.