Credit-Use and Technical Efficiency among Smallholder Banana Producers in Sheema District, Uganda

Abstract

Credit use among smallholder banana farmers is reportedly on the rise though with a high rate of loan repayment default in Sheema District. However, research has not responded to this challenge to ascertain whether these farmers use credit capital efficiently. Using a representative sample of 90 households, technical efficiency of credit-using banana farmers was estimated within the Cobb-Douglas production framework. Results of the Stochastic Production Frontier Analysis (SPF) revealed that banana producers were highly efficient, with 90% of the total variation in output arising from technical inefficiency rather than random variability. Credit capital and labor, as factors of production exhibited decreasing returns to scale. In the sample, if the average and least-efficient farmers adopted best practices of their mostefficient counterparts, their output and income streams would improve by 22.8% and 41.3% respectively. Post-secondary education, plot size for bananas and farming experience were identified as the major factors that would significantly reduce technical inefficiency. Overall, the current production technology in the banana farming system still needs a lot of improvement if credit capital is to be used efficiently. The study recommended searching for more productivity-enhancing technologies, extension training on credit management and appropriate agro-chemical use.