Profit Efficiency in Wheat Cultivation: An All-India Analysis of Farm Level Data

Subhash Ray and Linge Yang

No 2025-11, Working papers from University of Connecticut, Department of Economics

Abstract: In this paper, we use Data Envelopment Analysis (DEA) to measure profit efficiency in wheat farming, drawing on farm-level data from 4,529 farms across eight major wheat-producing states in India for the year 2016–2017. To the best of our knowledge, this is the first study to examine production efficiency in Indian agriculture focused on a single crop rather than the total value of output at a national scale, encompassing all major wheat-growing regions. We decompose profit efficiency into its technical and allocative components by exploring several alternative approaches to measure technical efficiency, including McFadden’s gauge function along with the conventional radial input-oriented distance function and the directional distance function. To explicitly account for agro-climatic heterogeneity across states, we construct state-specific production frontiers using only within-state observations to define the reference technology. Our empirical findings reveal that while average technical efficiency is not particularly low, extremely low levels of allocative efficiency significantly reduce overall profit efficiency. This result holds consistently across all definitions of technical efficiency considered. We speculate that the measured allocative efficiency could have resulted from market imperfections.

Keywords: Technical Efficiency; Allocative Efficiency; Nerlovian Efficiency; Gauge Function; Short Run Variable Profit Function; Data Envelopment Analysis (search for similar items in EconPapers)
JEL-codes: C6 Q12 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2025-10
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