Credit Use And Its Effect On Profitability Among Smallholder Maize Farmers In The Brong Ahafo Region Of Ghana

ABSTRACT

The study assesses credit use and its effect on profitability among smallholder maize farmers in the Brong Ahafo Region. A multistage sampling technique involving purposive sampling, stratified sampling and simple random sampling technique were employed to select the region,  two municipalities from the region and  200 smallholder maize farmers respectively for the survey using well-structured questionnaires. The study took into consideration a description of the sources of credit which included friends and relatives, Susu, famer Groups, Trade creditors, Rural Banks, Money lenders, NGOs. The factors influencing the decision of a farmer to use credit, determinants of farmers‟ credit use intensity and the indicators of profitability among smallholder farmers were investigated. Frequencies and percentages were employed to describe the sources of credit available to farmers in the study area.  The study employed a binary probit model to estimate the factors influencing the decision of a farmer to use credit whiles using the Tobit regression model to estimate the credit amount used intensity of smallholder maize farmers. Indicators of profitability such as Gross margin, Net revenue and Return on investment analyses were employed to estimate the profitability among smallholder farmers. A mean test for significance was employed to estimate the statistical differences among the maize farmers profitability. Tables, percentages and frequencies were employed to describe the socio-economic characteristics of the respondents as well as the sources of credit to farmers. The probit regression results revealed that the marginal effect of age, gender, and experience in farming, farmer objective, collateral, farm size, and farmer association significantly influence smallholder farmers decision to use credit. Results from the Tobit model revealed that landownership, educational level, production cost per hectare and interest rate had a significant relationship on farmers credit amount used for maize production. The mean net revenue among credit users and non-credit users were GH¢312.23 and GH¢192.42 respectively. The p-value calculated for gross margin is statistically significant at 0.001 which is less than the significance level of 0.05 set as the standard. This result implies that there is a significant difference in the Gross margin among credit users and non-credit users. Finally, it was revealed that use of credit has a significant positive effect on smallholder maize farmers‟ gross margins, net revenue and returns on investment. The study recommends that stakeholders‟ in agricultural industry such as MOFA, NGOs etc. should include in their sensitization programmes ways of enhancing farmers to adopt better farm management practices, since they are variables influencing farmers‟ use of credit. Farmers in groups should also develop the habit of monitoring their group members on credit use. This will improve on their credit use and grant access to more members.