Innovations in smallholder agricultural financing and economic efficiency of maize production in Ghana’s northern region

Abstract

This study used PSM and the selectivity-corrected framework for stochastic frontiers to examine how innovative agricultural finance practices of maize farmers in northern Ghana affect economic efficiency. We find, consistently, that users of innovative financing have higher technical (TE), allocative (AE), and economic efficiency (EE) scores than nonusers. The efficiency gaps between users and nonusers are 4% for TE; 5% for AE; and 10% for EE. Contrary to expectation, farmers’ access to mechanized services diminished their TE. Our findings indicate that short-term policies to increasing maize output should focus on reducing inefficiency levels than introducing new technologies. This can be achieved by providing technical training to farmers through improved access to agricultural extension services, provisioning farmers with timely access to tractors and equipment, and facilitating access to profitable output markets. The positive efficiency effects of using innovative financing suggests that policies should favour creating further sources of informal financial options for poor rural farmers. Here, Village Savings and Loans Associations can mitigate credit supply risks by linking farmers directly to inputs and reducing the need for cash loans. Local governments must harness Ghana Government’s Planting for Export and Rural Development programme to create sustainable employment opportunities that enable farmers to raise farm investment capital in the off-season.

Abstract

Innovative financing; Economic efficiency; Sample selectivity stochastic frontier; Propensity score matching; Village savings and loans association; Ghana.