Market access and agricultural production : the case of banana production in Uganda

Keywords: Smallholder poor farmers, market access, bananas, productivity, efficiency, labour demand, labour supply,<st1:country-region w:st="on"><st1:place w:st="on">Uganda</st1:place></st1:country-region>.<o:p></o:p></span>This study investigates the effects of factor and commodity markets on the development of the banana sub-sector in central and southwestern<st1:country-region w:st="on"><st1:place w:st="on">Uganda</st1:place></st1:country-region>.<span style='mso-spacerun:yes'> </span>The study analyses smallholder household response to production constraints (crop pests and diseases, soil constraints) and development of product markets and off-farm employment opportunities.<span style='mso-spacerun:yes'> </span>The study was carried out in central region, Masaka and southwest, which have divergent production constraints and opportunities.<span style='mso-spacerun:yes'> </span>Various analytical tools were employed in this study.<span style='mso-spacerun:yes'> </span>Cost benefit analysis was used to assess the competitiveness of banana production versus other crop enterprises.<span style='mso-spacerun:yes'> </span>The stochastic production frontier was used to analyze the technical and productive efficiency of banana farmers.<span style='mso-spacerun:yes'> </span>Production functions were estimated for the important crops to analyze the allocative efficiency of farmers in each study region.<span style='mso-spacerun:yes'> </span>Finally, labour supply and demand functions were estimated to determine the factors that influence labour allocation decisions and to assess the farmers' response to changes in economic conditions.<span style='mso-spacerun:yes'> </span>A multinomial logit model was fitted to identify factors that influence farmers' labour supply decisions between farm and off-farm work.<span style='mso-spacerun:yes'> </span><o:p></o:p></span><p class=MsoNormal style='text-align:justify;tab-stops:1.0cm center 70.9pt right 15.0cm'><span lang=EN-US style='mso-ansi-language:EN-US'>Results for the cost benefit analysis show that banana is the most profitable of all the crops grown, in terms of gross margin.<span style='mso-spacerun:yes'> </span>However, imperfections in labour and food markets cause farmers in the central region to allocate more land and labour to the less profitable annual crops (sweet potatoes, maize and cassava) but are more satisfying in terms of household food requirements.<span style='mso-spacerun:yes'> </span>High food prices and limitations in access to the off-farm labour market induce farmers to rely on own farm production for their household food needs.<span style='mso-spacerun:yes'> </span>Results from the technical efficiency analysis show that banana farmers in Uganda are technically inefficient, and output can be increased by 30 in the southwest and 58% in the central region.<span style='mso-spacerun:yes'> </span>Improved roads, formal education and access to credit are some of the factors that improve technical efficiency.<span style='mso-spacerun:yes'> </span>Agricultural extension visits significantly increases banana productivity in the southwest.<span style='mso-spacerun:yes'> </span>Results confirm that pest (banana weevil) and disease (Sigatoka) infestation contribute to the low banana production in the central region.<span style='mso-spacerun:yes'> </span><o:p></o:p></span><p class=MsoNormal style='text-align:justify;tab-stops:1.0cm center 70.9pt right 15.0cm'><span lang=EN-US style='mso-ansi-language:EN-US'>Farm size is positively related to farm productivity.<span style='mso-spacerun:yes'> </span>However, production is more efficient on smaller plots (decreasing returns to scale).<span style='mso-spacerun:yes'> </span>The low productivity on small farms puts to question the sustainability of smallholder agriculture, given the imperfections in labour and food markets and limited access to purchased inputs.<span style='mso-spacerun:yes'> </span>Analysis of the marginal products of labour shows that farmers are allocatively inefficient and production and consumption decisions are nonseparable.<span style='mso-spacerun:yes'> </span>Findings from labour supply analysis show that farmers respond positively to changes in shadow wage rates and negatively to changes in shadow income.<span style='mso-spacerun:yes'> </span>This implies that the farmers are responsive to economic incentives.<span style='mso-spacerun:yes'> </span>Access to off-farm opportunities takes away the most productive labour from farm production.<span style='mso-spacerun:yes'> </span>Thus improved road access and high wage rates are associated with lower farm labour productivity and lower labour supply.<span style='mso-spacerun:yes'> </span>Education and road access have a positive effect on time allocated to off-farm activities while farm size is negatively related to work hours in off-farm activities.<span style='mso-spacerun:yes'> </span><o:p></o:p></span><p class=MsoNormal style='text-align:justify;tab-stops:1.0cm center 70.9pt right 15.0cm'><span lang=EN-US style='mso-ansi-language:EN-US'>The study reveals that policies that promote income diversification into off-farm activities can contribute to sustained development in the rural sector.<span style='mso-spacerun:yes'> </span>In particular, policies that reduce transaction costs are likely to improve productivity and efficiency in both the off-farm sector and farm sector.<span style='mso-spacerun:yes'> </span>Investment in road infrastructure, education and financial institutions that are suited to smallholder production needs could help in alleviating the bottlenecks in the labour, food and financial markets, and improve resource allocation between the farm and nonfarm sectors