Effects of farm credit access on agricultural commercialization in Ghana: Empirical evidence from the northern Savannah ecological zone

Abstract

The purpose of this paper is to investigate how farmers' access to credit affects agricultural commercialization in the northern Savannah ecological zone of Ghana. The study uses data from the Ghana Feed the Future baseline survey involving a total sample of 2,962 farm households. The study employs endogenous switching regression for ordered outcomes to account for endogeneity and self-selection bias in the decision to access credit. The results from the estimations revealed that education, age, nonfarm business equipment, multiple crop production, and group membership are the variables influencing farmers' access to credit. Agricultural commercialization is determined by gender, age, marital status, household size, farm size, nonfarm business equipment, means of transport, group membership, assets index, multiple crop production, and location. In terms of causal effect, the results show that credit access stimulates higher commercialization. Thus policies that enhance farmers' access to credit are more likely to be successful in getting them to commercialize. 1 | INTRODUCTION The overall performance of the agriculture sector in Africa has been encouraging, as food security through increased agricultural outputs has been prioritized (Alemu & Adesina, 2017; Ogunniyi, Oluseyi, Adeyemi, Kabir, & Philips, 2017). The sector is the mainstay of the Ghanaian economy as it remains the largest employer employing almost half of the total labor force, contributing about 23% to gross domestic product (GDP) in 2012 and holding the key to the creation of demand in other sectors of the economy (Ghana Statistical Service [GSS], 2012; World Trade Organization [WTO], 2014). The sector plays a very important role in addressing food insecurity, poverty, and other human development challenges. Despite these positive contributions, the agriculture sector in Ghana remains largely rain-fed and subsistence-based, with rudimentary technology such as "cutlass and hoe" used for farming. The sector is characterized by low productivity, poor drought management, and insufficient and poorly maintained market infrastructure. All these contribute to making Ghana a net importer of agricultural products such as rice, wheat, sugar, and poultry (United States Department of Agriculture [USDA], 2012).

Youth agripreneurship in the horticultural value‐chain: The case of small‐scale mango farmers in Southern Ghana

“…On this basis, production of market‐oriented crops (such as horticultural crops), as well as targeting high value markets, is critical to poverty reduction of youth while at the same time improving the youth unemployment situation in rural areas. Thus, numerous studies (e.g., Abdul‐Rahaman & Abdulai, 2020; Fan & Garcia, 2018; Sekyi et al, 2020) provide critical factors that motivate smallholder participation in markets.…”

Access to Credit, Farm Productivity and Market Participation in Ghana: A Conditional Mixed Process Approach

“…In terms of empirical studies on agricultural productivity, the literature has concentrated on the relationship between farm size and productivity (Sekyi et al, 2017) and has generally found that small farms are more productive than large farms (see Barrett, Bellemare, & Hou, 2010; Kimhi, 2003; Larson, Otsuka, Matsumoto, & Kilic, 2012; Mazumdar, 1965). For example, the studies of Kimhi (2003) and Larson et al (2012) showed that productivity responds negatively to increases in farm sizes.…”

“…Such credit market failures are observed to be Alhassan et al Access to credit, productivity And mArket pArticipAtion 227 occasioned by adverse selection and moral hazards (see, Akerlof, 1970;Stiglitz & Weiss, 1981), which in turn impose the need for credit institutions to screen credit applicants. Sekyi, Abu, and Nkegbe (2017) note that the screening and sorting behaviours of financial institutions are the underlying explanation for the dichotomous response from credit application: either an applicant secures the credit or otherwise. Therefore, if a set of farmers apply for credit, credit institutions screen the applications on the basis of personal, household, institutional factors among others, and determine those that qualify for credit.…”

What factors influence access to and the level of participation in high value mango markets by smallholder farmers in Ghana?

“…This study used a maximum likelihood method to jointly estimate the marginal effects associated with the three-step decisions made by mango farmers. Sekyi et al. (2017) argue that a simultaneous estimation of multiple equations gives efficient estimates and thus allows for the testing of the correlations between the error terms.…”