The Determinants of Technical Efficiency of Cocoa Production in Ghana: An Analysis of the Role of Rural and Community Banks.

The role of rural and community banks (RCBs) has been laudable in promoting sustainable cocoa farming throughout rural communities in Ghana. Through liquidity mobilization and the ultimate provision of institutional credit to farmers for various agricultural related activities, RCBs could trigger increased revenue and agricultural sustainability. However, pragmatic evidence on this assertion is inadequate and no study has acknowledged the supporting conditions required for RCBs intervention to improve cocoa production in the agricultural sector. In a three-stage sampling procedure, a cross-sectional data from 500 cocoa farmers were used to evaluate the role of RCBs intervention in improving farmers’ sustenance and technical efficiency. In this study, the Heckman's treatment effect model and stochastic frontier analysis (SFA) were applied to study cocoa farmers’ production efficiency. Empirical results from the study indicated that the financial support received from RCBs has a significant and positive effect on farmers’ technical efficiency. Although accessibility to RCBs credit is constrained by a myriad of conditions, the overall technical efficiency of farmers was 0.81 (81%) suggesting that no farmer reached the cocoa production possibility frontier of 1 (100%). However, the mean efficiency gap between credit takers and non-credit takers is 0.09 (9%) confirming the positive impact of credit on farmers' efficiency. Relating the agricultural growth indicators such as cocoa output and income to efficiency, close observation revealed that increasing farmers' accessibility to credit can close the efficiency gap between farmers and its subsequent reduction in the severity of poverty and extreme poverty. Although the sector is bedeviled by pests and diseases, lack of finance, and uncertain weather conditions, the inefficiency model indicated that education, membership of FBO, experience, credit access, and participation in government-sponsored mass spraying program had a significant and positive impact on efficiency scores. Therefore, we recommend policy directed at making institutional credit from rural and community banks easily accessible to all categories of cocoa farmers.