PARTICIPATION IN CONTRACT FARMING AND ECONOMIC EFFICIENCY OF SOYBEAN PRODUCTION IN THE NORTHERN REGION OF GHANA

Abstract

Contract farming (CF) is emerging as a critical intervention to improve the livelihoods of Ghanaian small-scale soybean farmers. Farmers can achieve this if they become more efficient. Government and non-governmental organizations, including the Savanna Farmers Marketing Company (SFMC), the Northern Development Authority (NDA), and Adventist Development and Relief Agency (ADRA), have begun contracting farmers to cultivate soybeans in Ghana's northern region. Farmers are provided with inputs such as improved seeds, tractor services, credit facilities, and extension services as part of the terms of these contracts. Despite these provisions, there is serious concern about farmers' inability to produce efficiently. The primary goal of the study was to investigate the effects of CF on the economic Efficiency (EE) of soybean production in Ghana's Northern Region, as well as the factors that may be influencing famers' economic inefficiency. Using multi-stage sampling techniques, primary data were collected from 374 smallholder soybean farmers in three (3) districts of the Northern Region, composed of 200 contract farmers and 174 non-contract farmers. The stochastic frontier model was specified, along with technical, allocative, and EE models, and used to determine the effects of CF participation and soybean farmer efficiency. According to the findings, gender, education, off-farm business, FBO membership, farm size, access to agricultural extension service, and distance from farm to market centre all had a positive impact on CF participation. However, participation was negatively affected by experience in soybean production and production credit. The estimated average technical, allocative, and economic efficiencies scores among the contract farmers were 92%, 87%, and 94% respectively. For non-contract farmers, the estimated average technical, allocative, and economic efficiencies scores were 97%, 73% and 87% respectively. This implies that, for contract farmers 8% of production is lost due to technical inefficiency as compared to only 3% for their non-contract counterparts. the mean allocative efficiencies estimate mean that the average farmer's cost-saving potential in relation to the most efficient farmer stands at about 13.1% for contract farmers and 26.5% for non-contract farmers. Also the mean economic efficiencies of contract and non-contract farmers indicates that farmers on average were operating about 6% and 13% respectively below their optimum frontier output which maximizes profit from the best cost minimizing input combination. The findings also revealed that male farmers outperformed their female counterparts in terms of EE. Crop diversification, farm-to-home-market distance, and Farmers‘ Based Organization (FBO) membership all had a negative impact on economic inefficiency. Equipment and infrastructure for soybean production were found to be the most pressing problems, as most farmers found it difficult to access tractor services to plough their land during land preparation. In conclusion, CF can be a good intervention to address farmers‘ production and marketing needs especially for a cash crop like soybean. However, the results show that the sector is not regulated; currently there is no government institutional and legal framework stipulating general terms and conditions of CF. The absence of such a document to guide the operations of contracting institutions and farmers poses a threat to both contractors and potential beneficiaries. The study recommends among others that, soybean farmers should be taught more efficient farming methods to help increase their efficiency through a collaborative effort of the MoFA, and NGOs. Also, to reduce farmer inefficiency, MoFA, contracting firms, NGOs, and other agricultural stakeholders should build the capacity of soybean farmers through trainings and workshops. Furthermore, inputs, especially tractor services, should be delivered on timely basis by contracting firms to farmers to plough their lands. This will address the situation where there is a shortage of rain for the crop because of delay in cultivation.