This study aimed at evaluating the economic efficiency of milk production among small-scale dairy farmers in Mukurweini, Nyeri County, Kenya. Data were collected from 91 small-scale dairy farmers previously engaged in a nutritional study in 2013. The farmers had been sampled using purposive sampling technique. Data were collected using structured questionnaires, entered into statistical package for social science (SPSS). Stochastic frontier production and cost functions were analyzed using the MLE technique in FRONTIER 4.1. The results showed that farmers were operating at increasing returns to scale of 1.495. The number of lactating cows, amount of concentrates fed to a cow and the cost of animal health controls had a significant effect on milk production, while the production cost was influenced by the costs of fodder, concentrates, animal health and other operating expenses. The mean technical and allocative scores were 0.687 and 0.913 respectively. The milk production could be increased by 31.3% through proper utilization of the available resources such as fodder and concentrates, while the cost of production can be decreased by 8.7% without affecting the output. It was concluded that through efficient use of the available inputs, like the fodder and present technology, economic efficiency would be greatly increased. The study recommends subsidized prices for concentrates.
Key words: Stochastic frontier, milk production, technical, allocative, economic, efficiency.