Profit efficiency of small- and medium-scale maize milling enterprises in South Africa

Abstract

Despite the reported large margins between producer prices for maize and retail prices for maize meal and the fact that maize meal is a staple food for most of the South African population, there have been only limited investments in small- and medium-scale maize milling in South Africa since the deregulation of the maize markets. The apparent failure of small- and medium-scale maize millers to emerge and compete effectively in the maize milling industry in South Africa raises questions about their scale and level of efficiency. Against this background, this paper analyses the profit efficiency of these enterprises, using a translog stochastic profit frontier model. Findings from the profit efficiency analysis show an average profit efficiency score of 80.6 per cent for the small-scale mills and 87.4 per cent for the medium-scale mills. There is therefore a significant unexplored potential in these categories of mills. © 2009 Development Bank of Southern Africa.