Abstract:

India is the largest milk producer in the world, but faces a lot of challenges in the form of dropouts from the farming activity, high cost of milk production and meagre returns. All this is due to the inefficient use of the inputs. Efficiency signifies a level of performance that describes using the minimal values of input to achieve the highest amount of output. The study was conducted to estimate the allocative efficiency of dairy farms in Kerala, India, by applying stochastic cost function methodology. Allocative efficiency estimates are generated for 300 dairy farms in Kerala. The results of the study communicates the allocative efficiency of milk production by the dairy farms in Kerala is between 70-79 per cent levels of efficiency. The mean efficiency is only 61.3 per cent, where the farms could increase efficiency by 51.3 per cent.  There is a statistically significant difference between the farm sizes concerning allocative efficiency. To enhance farm efficiency, there should be a proper awareness and education regarding how to reduce the cost of production