ABSTRACT
The study assesses credit use and its effect on profitability among smallholder maize farmers in the Brong Ahafo Region. A multistage sampling technique involving purposive sampling, stratified sampling and simple random sampling technique were employed to select the region, two municipalities from the region and 200 smallholder maize farmers respectively for the survey using well-structured questionnaires. The study took into consideration a description of the sources of credit which included friends and relatives, Susu, famer Groups, Trade creditors, Rural Banks, Money lenders, NGOs. The factors influencing the decision of a farmer to use credit, determinants of farmers‟ credit use intensity and the indicators of profitability among smallholder farmers were investigated. Frequencies and percentages were employed to describe the sources of credit available to farmers in the study area. The study employed a binary probit model to estimate the factors influencing the decision of a farmer to use credit whiles using the Tobit regression model to estimate the credit amount used intensity of smallholder maize farmers. Indicators of profitability such as Gross margin, Net revenue and Return on investment analyses were employed to estimate the profitability among smallholder farmers. A mean test for significance was employed to estimate the statistical differences among the maize farmers profitability. Tables, percentages and frequencies were employed to describe the socio-economic characteristics of the respondents as well as the sources of credit to farmers. The probit regression results revealed that the marginal effect of age, gender, and experience in farming, farmer objective, collateral, farm size, and farmer association significantly influence smallholder farmers decision to use credit. Results from the Tobit model revealed that landownership, educational level, production cost per hectare and interest rate had a significant relationship on farmers credit amount used for maize production. The mean net revenue among credit users and non-credit users were GH¢312.23 and GH¢192.42 respectively. The p-value calculated for gross margin is statistically significant at 0.001 which is less than the significance level of 0.05 set as the standard. This result implies that there is a significant difference in the Gross margin among credit users and non-credit users. Finally, it was revealed that use of credit has a significant positive effect on smallholder maize farmers‟ gross margins, net revenue and returns on investment. The study recommends that stakeholders‟ in agricultural industry such as MOFA, NGOs etc. should include in their sensitization programmes ways of enhancing farmers to adopt better farm management practices, since they are variables influencing farmers‟ use of credit. Farmers in groups should also develop the habit of monitoring their group members on credit use. This will improve on their credit use and grant access to more members.
CHAPTER ONE
INTRODUCTION
Background
Agriculture is said to be a strategic sector in the development of most low-income countries. Ghana is largely an agrarian economy where most of her citizens rely solely on agriculture for survival. The agricultural sector is very essential and dominant in Ghana‟s economy. It accounts for over 50 percent of foreign exchange earnings to the country (MoFA, 2011).
Farmers in most developing countries are smallholders operating on limited scale and often rely on family land and labour. The Ghanaian agriculture sector for instance is dominated by small scale farmers who are found in rural areas farming less than two hectares each. Small scale farmers in Ghana use about 90% of the total agricultural land cultivated (MoFA, 2011). These farmers are often constraint with farming logistics such as inputs and other machinery to support their production mainly due to inadequate finance to purchase those items. Productivity is often too low leading to low yield mainly due to the inadequate investment in logistics into their farming business and hence unable to increase their profitability.
Maize production in Ghana requires more investment in fertilizer and other agrochemicals to enhance productivity. These farmers who are producing on small scale and cannot afford most productive resources on their own certainly need support in terms of resources and other farm inputs such as improved seeds, fertilizers, labour and above all credit to be efficient in order to stay profitable in their farming businesses. Extending credit to smallholder farmers will enable them have access to adequate farm lands, afford both skilled and unskilled labour to work on farms and also to deploy modern farm technology to boost production and enhance farm profit.
The dominance of the smallholder farmers in Ghana therefore implies that, policy enacted to enhance agricultural development should target the smallholder farmers.
Policies such as the GPRS II, FASDEP II, METASIP and financial institutions such as the Agricultural Development Bank were designed to help support the smallholder farmers with access to input resources and market by making credit available and accessible to the farmers. The motivation for these policies and institutions were to improve farmers‟ productivity to enhance increased farm income and improve their living standards (World Bank, 2008). Current rural development strategies outlined in the FASDEP II are converging on agricultural modernization through transformation of the subsistence smallholder farmers to the one that is producing for the market. The purpose is to achieve commercial orientation, adoption of productivity enhancing technologies and associated inputs like credit. To improve farmers‟ access to credit, it is important to strengthen the capacity of operators in credit management system, by way of intensifying loan procedures, education of farmers and also seeking to link the formal and informal financial service delivery. In view of this, MoFA seeks to improve farmers‟ income and improve their living standards by enhancing the cultivation of staple crops through the use of credit as an instrument (Olwande & Mathenge, 2012).
Use of credit by smallholder farmers helps in acquiring requisite farm inputs and engages in other off farm activities. According to Bashir et al. (2010) farmers‟ ability to use inputs extensively and appropriately is determined by access to credit. This confirms the study by Girabi & Mwakaje (2013) and Ashaolu et al. (2011) that farmers proved that credit users are more productive than those without credit. Research findings by Al-Hassan et al. (2006), Omiti et al. (2009), Jari & Fraser, (2009) and Siziba et al. (2011) highlight higher profit and prospects
of curbing poverty to ensure sustainable livelihoods, expanded production and the adoption of productivity enhancing technologies for credit users.
Since farmers securing credit depends largely on their will and ability to repay at a price which covers the total loan by a lender, it has become very difficult for these smallholder farmers to access credit because most of them do not have the required collaterals to signal their guarantee credit worthiness of repaying the loans. According to Onumah & De-Graft Acquah, (2011), credit sustainability and other financial services to farmers and the rural inhabitants in the low- income countries has resulted to be a tedious task which has become a major development obstacle.
The Brong Ahafo Region of Ghana remains the major maize crop producer (MoFA, 2010). Among the cereal production in Ghana, maize accounts for 50-60% representing the second largest crop after cocoa (MiDA, 2010). It is estimated that about 70% of smallholder farmers are into maize production in Ghana and lack the necessary finances to invest in input resources such improved seeds, fertilizer, mechanized services, among others. Since the ability of a farmer to secure extra funding forms the bedrock of most smallholder farmers‟ source of massive investment, it is worthwhile that a comprehensive study is undertaken to unearth the bottlenecks involved in the process and to identify the effects of the credit usage on farmers‟ profit.
This study therefore investigates how the smallholder maize farmer accesses and uses credit and how it directly or indirectly affects their farm profitability.
