Estimating profit efficiency of local beef traders in Tamale, Ghana: a stochastic frontier model approach

Abstract

The study used a stochastic frontier analysis to analyze the determinants of net returns and net returns efficiency of local beef traders in Tamale, Ghana. Net returns were evaluated as total sales revenue minus the sum of marketing cost and purchase price. Primary data were collected from a random sample of 160 beef traders using a structured questionnaire. The results showed that factors such as cost of packaging, transportation, and storage significantly influence the net returns of beef traders. The mean net returns were 0.683, suggesting beef traders are 68.3% more profit efficient. The study found that beef traders in the central market are more efficient than in the other three markets due to its strategic location for attracting more busier and well-off customers. The significant sources of net returns (in) efficiency were age, education, household size, ownership of cold storage facility, access to marketing information, and membership in traders’ associations. The study concludes that the beef trading business in Tamale is profitable, but traders’ profit efficiency needs to be improved. Furthermore, several challenges confronting traders in Tamale that need to be mitigated. The two most prevalent challenge reported by traders were inadequate capital and inadequate cold storage facilities. The study recommends that the establishment of marketing associations could play a pivotal role in alleviating inefficiencies in beef marketing. Furthermore, educational programs could help improve the net returns efficiency of beef traders. Beef traders should also be trained with better cost minimizing packaging options that would maximize their net returns. The study also recommends measures such as providing cold storage infrastructure to significantly alleviate the challenges faced by beef traders in Tamale. Also, policies should moderate the transportation charges for beef traders in order to reduce their marketing cost and increase their profit. The establishment of marketing associations could help to alleviate inefficiencies in beef retailing. Hence, beef traders should be encouraged to join associations.