Abstract
This study examines the effect of quantity sold (sales volume) on profitability of market participating smallholder farmers in northern Ghana. Market participation has been shown to be important for increasing incomes and improving production efficiency for farm households but still remains low in SSA. While agribusiness and development experts generally advocate for more intensive market participation, it is not clear if selling more results in more profits for smallholder farmers in remote markets that are prone to exorbitant transaction costs. The data used in this study is from the APS survey conducted in 2013 and 2014 in Northern Ghana which had a sample size of 527. The study is based on the theory of profit maximization, in which separability is inferred from observed market participation. OLS regression is used for empirical estimation after rejecting the hypothesis of endogeneity in the model. Mean gross margin/ kg across four groups of farmers ranked by quantity sold is also statistically examined. The results confirm the existence of economies of scale and also show that different crops have different effects on profitability. The results also show that although unambiguously positive, the relationship between quantity sold and profitability may not be linear.
Highlights
1.1 Research BackgroundStimulating smallholder market participation is one way of breaking the rural poor free from their poverty trap (Barrett 2008)
The results show that only 47% of the farmers sold their produce and that, on average, farmers were making a loss of about 13 GHS in the 2013/2014 agricultural season in northern Ghana
The results show that based on total output, maize is the least profitable crop with an average total gross margin of -105.47 GHS
Summary
1.1 Research BackgroundStimulating smallholder market participation is one way of breaking the rural poor free from their poverty trap (Barrett 2008). Research in Kenya and South Africa has shown that there is a positive relationship between the share of households’ agricultural output sold in the market and the level of production efficiency and yields (Barrett, 2008; Omiti et al, 2009). Farmers who sell their produce access income that they can use to meet other household needs including buying food. For most SSA countries such as Ghana, many smallholder farmers in remote areas opt not to participate in markets due to inadequate access to productive technologies to produce a marketable surplus and due to poor institutions and infrastructure which make it difficult and costly for them to access markets (Barrett, 2008)
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