Agglomeration Externalities, Productivity And Technical Efficiency Of Soybean Farms In The Upper East And Upper West Regions Of Ghana

ABSTRACT

The study set out to identify agglomeration externalities in Ghana’s soybean sector and to assess soybean output elasticities with respect to input-use. The study also analyzed the technical efficiency levels in the soybean sector and the effect of agglomeration externalities on productivity and technical efficiency of soybean farms. The study identifies some components of agglomeration externalities across the soybean sector and defines agglomeration externalities by two indexes; industry size captured by whether the farmers belong to Farmer Associations (FA) and if they do, what their Farm Densities (FD) are, measured by the number of smallholder farms per square kilometre that the individual farms belong to. A stochastic frontier model with the agglomeration indexes FA and FD and a technical efficiency model are specified to ascertain the effects of agglomeration and its externalities on the production frontier and efficiency of the soybean farms. The estimation of the frontier model is carried out on data collected from 393 soybean farms in the Upper East and Upper West Regions of Ghana. Also, 193 of the 393 farmers belong to farmer associations while the remaining 200 do not. The Ox-SFAMB version 3.40 was used to estimate the parameters. Hypotheses tests carried out using Log-likelihood ratio estimates indicate that the translog stochastic production model is the best fit for the data. The results show that for the production frontier, FA and FD are seen to have a significantly positive relationship with productivity. The coefficients of FA and FD are 1.02 and 0.03. The positive relationship between productivity and farm density suggests the presence of positive congestion externalities. FD has a positive influence on efficiency but FA was found to have negative implications on the technical efficiency of soybean farms. The results of the Maximum-Likelihood Estimates of the stochastic frontier model show that a percentage increase in seed, capital, labour and fertilizer, respectively, will increase the soybean production frontier by 0.14, 0.14, 0.28 and 0.41 percent. The soybean sector exhibits diminishing returns to scale of 0.98 percent increase in output with one percent increase in all input with the mean technical efficiency index of the sector estimated at 0.52. Age and gender have a negative relationship with efficiency. This indicates that younger farmers are more efficient than their older counterparts and female farmers are more efficient than male farmers. Increase in frequency of farmer-extension agent interactions also leads to increase in the efficiency of the farmers. The findings of the study confirm that FA and FD have significant influence on productivity and technical efficiency of soybean farms. The implications of these results are that there is the need for government and stakeholders to help improve productivity and efficiency in the soybean sector by helping farmers to better access positive agglomeration externalities. Government should put mechanisms in place to ensure easy access of farmers to factor inputs such as seed and fertilizer. Extension officers must interact more with soybean farmers and introduce high yielding seeds to farmers to enable them cut down on costs of production. Field trials and workshops should be organized to teach farmers better farming practices and motivate farmers to adopt new farming technologies.