Agricultural trade credit: Evidence from smallholder primary producers in Ghana

Abstract

Orientation: Players in the agricultural value chain such as input suppliers, farmers (producers), traders (middlemen), processors or manufacturers and exporters do receive credit and extend credit, in the form of trade credit, as part of their transactions. Research purpose: The purpose of the study is to examine agricultural trade credit, particularly the factors that influence the receipt and extension of agricultural trade credit in smallholder farmer settings. Motivation for the study: The study is motivated by the limited understanding of trade credit activity in smallholder farmer settings in developing countries. Research approach/design and method: It is a cross-sectional quantitative study. It utilised the Ghana Living Standards Survey Round 7 dataset (GLSS 7). The data contains 18 653 observations, and a multinomial logit model (MNL) was employed in the data analysis. Main findings: The results show that trade credit receivable (where farmers extend credit to buyers) is more important relative to advance payment (where farmers receive credit from buyers). The receipt of advance payment is influenced by a farmer holding a preharvest contract, practising monocropping and coming from a smaller household. Age, marital status, literacy, crops sales value, national origin, marketing channels, type of crops and urban location are found to be significant explanatory factors of trade credit supply. Practical/managerial implications: Trade credit, particularly input credit and advance payment, can help primary agricultural producers to mitigate their production credit constraints. However, a well-functioning agribusiness environment that will lower the risks associated with trade credit activity is very crucial. Contribution/value-add: The study extends the frontiers of knowledge in agricultural financing by generating empirical evidence on trade credit activity in smallholder farmer settings in a developing country context.