Access to credit and determinants of technical inefficiency of specialized smallholder farmers in Chile

Abstract

Access to credit and credit constraint are critical determinants of competitiveness in agriculture; they have an impact on the technical efficiency of farms. The objective of this study was to analyze how credit variables influence the technical efficiency of two groups of specialized smallholder farmers in Chile. The translog stochastic production frontier model was used to predict the level of farm technical efficiency by the maximum likelihood method. Based on 2004 data, production functions and technical inefficiency score were estimated for 109 livestock and 342 crop producers. Results showed that the mean technical efficiency was 89% and 78% for crop and livestock producers, respectively. Technical efficiency increased with the decreasing use of inputs, dependence on on-farm income, farmer education, family size, and age of the head of household. Credit volume had a significant impact by increasing and decreasing efficiency in crop and livestock production, respectively. Correspondingly, credit-constrained farmers were less efficient in crop production and more efficient in livestock production. For livestock producers, credit volume and credit constraints were found to be endogenous to technical efficiency. A possible explanation is the organization of public support for small livestock producers in Chile, which provides lenders with information about individual livestock producers. Correcting for this endogeneity did not lead to qualitatively different results, but it did influence point estimates of parameters in the production function and inefficiency models, suggesting that it is important to test for endogeneity in the variables used to model inefficiency effects.

Improving the effectiveness of rural development policy in Chile

“…This finding is not consistent with many previous studies von Cramon-Taubadel and Saldias 2014) and suggests that older farmers are more reluctant to innovate or less committed to business (as they are mostly at or near their exit stage) . In addition, older farmers might be less energetic than younger farmers.…”

“…Only 17% (25 farms) of the farms were operating at the optimal scale size (CRS), and a similar percentage (14% = 20 farms) were operating under DRS. Our finding is consistent with values reported for Chile (Moreira et al 2006;von Cramon-Taubadel and Saldias 2014), and other countries (Fraser and Cordina 1999). These findings indicate that the scale at which most farms were operating was too small (IRS), therefore these farms can gain efficiency by increasing the size of the operation .…”

“…Education is often found to have a positive effect on technical efficiency (Avilez et al 2010;von Cramon-Taubadel and Saldias 2014), however our study finds no significant effect. Women have become more involved in farming in the past decade Trauger et al 2010;INDAP 2014), however our finding indicates that there is no difference ceteris paribus, in the efficiency with which farms managed by men and women are managed.…”

“…The variables most frequently used in Latin America are farmer education and experience, contacts with extension, access to credit, and farm size (Bravo-Ureta and Pinheiro 1993). For Chile, von Cramon-Taubadel and Saldias (2014) found that the age and education of the farmer and the share of on-farm income influence farm efficiency.…”

“…Although existing literature shows that there is substantial scope for improving the farm efficiency of Chilean farmers (Moreira et al 2006;von Cramon-Taubadel and Saldias 2014;Carter Leal et al 2016), none of these studies analyzed the input-specific technical inefficiency with which a farmer operates.…”