Performance of Dairy Plants in the Cooperative and Private Sectors in India

During the 1990s the cooperative dairy processing sector in India was exposed to greater competition from private sector plants. In this paper we measure cost efficiency (decomposed into technical and allocative efficiency) at the dairy plant level in the cooperative and private sectors in India. Two efficiency measurement methods are used: stochastic frontier analysis (SFA) and data envelopment analysis (DEA). The study utilizes an (incomplete) panel data sample of 23 plants, comprising 13 cooperative plants and 10 private plants, observed between 1992/93 and 1996/97. Our results indicate that cooperative plants are more cost efficient than private plants, although this difference is insignificant at the 5 per cent level. Furthermore, we observe that the cost efficiency of cooperative plants has not improved since market liberalization in 1991. These results suggest that the liberalization policy has not yet realized its expected benefits, and also cause us to question the general expectation that private operators will have efficiency advantages relative to cooperatives.