Diversification economies and specialisation efficiencies in a mixed food and coffee smallholder farming system in Papua New Guinea

Abstract Smallholder farming systems in Papua New Guinea are characterised by an integrated set of cash cropping and subsistence food cropping activities. In the Highlands provinces, the subsistence food crop sub‐system is dominated by sweet potato production. Coffee dominates the cash cropping sub‐system, but a limited number of food crops are also grown for cash sale. The dynamics between sub‐systems can influence the scope for complementarity between, and technical efficiency of, their operations, especially in light of the seasonality of demand for household labour and management inputs within the farming system. A crucial element of these dynamic processes is diversification into commercial agricultural production, which can influence factor productivity and the efficiency of crop production where smallholders maintain a strong production base in subsistence foods. In this study we use survey data from households engaged in coffee and food crop production in the Benabena district of Eastern Highlands Province to derive technical efficiency indices for each household over two years. A stochastic input distance function approach is used to establish whether diversification economies exist and whether specialisation in coffee, subsistence food or cash food production significantly influences technical efficiency on the sampled smallholdings. Diversification economies are weakly evident between subsistence food production and both coffee and cash food production, but diseconomies of diversification are discerned between coffee and cash food production. A number of factors are tested for their effects on technical efficiency. Significant technical efficiency gains are made from diversification among broad cropping enterprises.