Analysis of Financial Efficiency and Constraints of Smallholder Cotton Farmers in the Northern Region of Ghana

Abstract

This study examined the financial efficiency and constraints faced by smallholder cotton farmers in some selected districts in the Northern Region of Ghana. Multistage sampling approach was employed to solicit cross-sectional data from 150 smallholder cotton farmers in three selected districts and six communities spread across the region using a structured questionnaire. The data was collected during the 2009 cotton growing season. Financial efficiency measures were estimated to reveal the financial efficiency levels of cotton farmers. These measures include Asset Turnover Ratio, Operating Expense Ratio, Depreciation Expense Ratio, and Net Farm Income Ratio. These were estimated and compared with benchmarks and valid conclusions drawn. Constraints faced by smallholder cotton farmers were also identified and analyzed using Kendal’s Concordance analysis and agreement among the rankings of constraints by cotton farmers tested. The results show inconclusive financial efficiency levels of smallholder cotton farmers. Comparing financial efficiency ratios to the bench mark figures, Asset Turnover Ratio (20.28%), Operating Expense Ratio (74.1%) and Net Farm Income Ratio (19.14%) show that smallholder cotton farmers in the Northern Region are financially inefficient but efficient in terms of Depreciation Expense   Ratio (3.29%). Several constraints were also identified as hindering the successful cotton production in the Northern Region. Poor pricing of seed cotton appeared as the most limiting constraints followed by untimely supply of farm inputs whilst lack of access to land was ranked as the least constraint. Kendal’s Concordance analysis revealed that there was about 87.4% agreement among the rankings of the constraints. The government, NGOs in the cotton sector, private cotton companies and other cotton stakeholders should step up their efforts in building capacities of smallholder cotton farmers in both technical and financial management to enable them handle efficiently the cotton production business. Management of cotton companies as well as government should regularly meet with smallholder cotton farmer associations in the Northern Region to negotiate fair prices for seed cotton. This will inevitably entice the farmers to remain in the cotton production business for improved livelihoods. There is the need for the formation of cotton stakeholder committees with the mandate of carrying out monitoring on timeliness of input supply by cotton companies to cotton farmers.