Effect of Credit Constraint on Profit of Small Scale Rice-Based Farmers in Niger State, Northwestern Nigeria

Credit constraint occurs when a farmer cannot increase expenditure on inputs in order to maximize profit due to lack of farm credit or high cost of credit. Farming households are confronted with credit constraint that results in low crop output and profit. Using a non-parametric measure of efficiency, the Data Envelopment Analysis Programme (DEAP) and a credit-constrained profit function, this study analyses the presence and effect of credit constraint on the profit maximization objective of rice farmers in a 2009 survey conducted in Niger State, Northwestern Nigeria. The differences between profit functions with and without a credit constraint gave a measure of the effect of credit constraint on profit. Results showed that most rice farmers (67.5%) were credit constrained. Credit-unconstrained rice farmers (CUF) that used formal credit spent N23,583.87±8662.18/ha and N11,806.45±6927.71/ha respectively on fertilizer and herbicides as compared to N16,675.00±9627.48/ha and N7,591.18±7503.02/ha respectively by informal credit recipients. On the other hand, credit constrained farmers (CCF) spent N11,949.78±8488.26/ha and N5550.00±5145.61/ha on fertilizer and herbicides. There was significant difference in gross margin of CUF (N315, 380.60/ ha) and CCF (N220, 477.85/ha). CCF were less efficient and less profitable. CUF, contrariwise, were able to spend more on improved farm inputs, more efficient and more profitable. It is recommended that suitable credit support and educational programmes for rice farmers should be established to encourage expenditure and efficient use of improved inputs, enhance rice production and increase profitability