How might shadow price restrictions reduce technical efficiency? Evidence from a restricted DEA analysis of coffee farms in Vietnam

Abstract

This article analyzes the effect of potential restrictions on the shadow prices of chemical inputs on technical efficiency among smallholder coffee farmers in Vietnam. Population growth and an increase in the amount of land being converted to coffee farms has caused rapid depletion and degradation of natural resources in many regions. In addition, high international prices for coffee and high government incentives have influenced many farmers to switch to coffee production. Because of increased coffee farming activities, there is an increased need to apply chemical inputs, such as pesticides and herbicides, to the land. This study used an input-oriented data envelopment analysis (DEA) model to analyze whether reducing the amount of chemicals used, in an effort to increase environmental quality, will negatively impact the technical efficiency for smallholders. The results showed that restricting the shadow price of chemical inputs does not drastically affect patterns or measures of short-run efficiency. Therefore, the health of the environment can be improved with only small sacrifices in technical efficiency at the smallholder level.