Abstract
The study examines the efficiency of dairy farms and market structure, conduct and performance of dairy processing firms in Bangladesh. A stratified random sampling procedure was followed to choose farm-level sample from five districts namely, Gazipur, Manikgonj, Pabna, Sirajgonj and Rangpur being concentrated in dairy activity in Bangladesh. A Cobb-Douglas stochastic frontier production function was specified and estimated to examine the levels of farm-specific technical efficiencies of dairy operation using primary data. The model was estimated employing FRONTIER 4.1 package. A number of hypotheses were tested in the study. The major findings of the study are that per farm net returns of small, medium and large were Tk.32706.61, Tk.57784.05 and Tk.81863.94 respectively. The BCR was found 1.16, 1.19 and 1.20 on full cost basis for small, medium and large farms respectively. Using a sample of 180 dairy operators selected from five districts, the mean technical efficiency was estimated to be 64, 75 and 78 per cent for small, medium and large farms respectively. Age, education, training and experience appeared to have significant effect in explaining inefficiency of the sample dairy farm operators. It was also evident that dairy farms were beset with a number of problems. On the other hand, structure-conduct-performance (SCP) model was applied to explore performance of dairy firms by means of structure and conduct. Concentration in pasteurized milk processing, butter manufacturing, 'Ghee' manufacturing and ice-cream manufacturing was increasing since 1990-91. Market concentration as a buyer of raw milk was also found increasing in the reference period. So the industry is characterized by highly concentrated oligopolistic sellers and highly concentrated oligopsonistic buyers in nature. The market conduct variables considered price policy and product policy to become even more predominant in dairy industry. No independent pricing was found because firms are more interdependent. And they are more careful about their competitors' actions. With increasing concentration, efficiency increased, financial performance increased and industry became more progressive because they were able to adopt new technology. Firms in the dairy industry had a wider scope to improve their efficiency by using full capacity that increased per unit costs considerably. Changes in market structure of dairy industry in the direction of a smaller number and increase in the size of firms appeared to result in an improvement in the overall performance of the industry. Based on the findings of the study, some recommendations were put forward for the development of dairy industry in Bangladesh.