Production inefficiency is usually analysed by its two components – technical efficiency and
allocative efficiency. In this study we provide a direct measure of production efficiency of the
Bangladeshi rice farmers using a stochastic profit frontier and inefficiency effects model. The data,
which is for 1996, includes seven conventional inputs and several other background factors affecting
production of modern or high yielding varieties (HYVs) of rice spread across 21 villages in three agroecological
regions of Bangladesh. The results show that there are high levels of inefficiency in modern
rice cultivation. The mean level of profit efficiency is 77% suggesting that an estimated 23% of the profit
is lost due to a combination of both technical and allocative inefficiency in modern rice production. The
efficiency differences are explained largely by infrastructure, soil fertility, experience, extension services,
tenancy and share of non-agricultural income.