DO FARM LEVEL TECHNICAL EFCIENCY AND WELFARE COMPLEMENT EACH OTHER? INSIGHT FROM GHANA’S COCOA INDUSTRY

Abstract

Technical inefficiency persists in Ghana’s cocoa farms. Farm-level guidelines from empirical studies are essential to inform programmes dealing with this challenge and subsequently improves farmers’ welfare. This study evaluates the two-way effects of technical efficiency and welfare using Data Envelopment Analysis (DEA) and Conditional Mixed-process (CMP). The study reveals that, with no additional inputs, farmers have the potential of increasing their output by an average of 56% (overall technical efficiency) with mean pure technical and scale efficiencies estimated at 76% and 58%, respectively. Observed inefficiency in the Ghanaian cocoa farms is due to both inefficient utilization of inputs and farmers’ inability to operate at the most productive scale size. Furthermore, findings from the study indicated that improved technical efficiency and welfare of smallholder cocoa farmers are crucial for the sustainable growth of Ghana’s cocoa sector as farmers’ efficiency and welfare significantly complement each other. In other words, improved welfare enhances technical efficiency, and higher technical efficiency score translates into better welfare. Hence, farm-level policies such as inputs subsidy programmes, training farmers on the proper application of agrochemicals, among others to enhance farm efficiency should be strengthened since efficiency is tied to household welfare. Moreover, investment in education targeted at farmers to improve their managerial and technical capacities will enhance their ability to optimize the operational size of the cocoa production system, and subsequently improve their welfare.