FARMER INNOVATIONS IN AGRICULTURAL FINANCING AND ECONOMIC EFFICIENCY OF MAIZE PRODUCTION IN THE NORTHERN REGION OF GHANA

Abstract

The main objective of this study is to identify the innovative agricultural finance practices of maize farmers in the Northern region and how they affect economic efficiency (EE) of production. Credit markets in rural Ghana are woefully inadequate or missing, and some smallholder farmers have been observed to desist from participating in same even when they are available. These phenomena necessitate a shift in the focus of agricultural financing studies towards assessing how farmers innovatively finance their activities using their own resources. To this end, farm household data from 347 respondents was collected in a quasi-experimental survey for analysis from six districts in the Northern region. The decision to use innovative financing is made non-randomly and this creates the possibility for self-selection and selectivity bias. A matched group of user and nonuser farmers is determined using Propensity Score Matching to mitigate biases from observed variables. Also, possible self-selection due to unobserved variables is addressed using the Selectivity Correction Model for Stochastic Frontiers. From the results, average EE is significantly higher for user farmers while the presence of selectivity bias cannot be rejected. Mean EE is 0.7572 for users and 0.6607 for nonusers. The results indicate a wide scope for reducing production costs at the current output level and also that users of innovative financing exhibit higher EE enforcing its viability as alternative means of increasing maize productivity in Ghana. The study recommends that credit-constrained farmers be encouraged to join VSLAs in order to access the credit facilities they present. Also, essential services and technologies like AEA contact and tractor services should be made available to farmers timely as they were found to significantly increase economic efficiency.