CHAPTER ONE INTRODUCTION

            Background

The agricultural sector in most developing economies contributes significantly to economic growth and development. About 80 percent of farmers engaged in agricultural activities in sub Saharan Africa operate on smallholdings measuring less than 2 hectares with such farms contributing nearly 80 percent of food produced in the world (Busschaert, 2014) with an estimated $450 billion funds demanded by smallholder farmers worldwide to improve productivity (Carroll et al. 2012). These smallholder farmers are faced with common challenges consisting of low output, poor produce quality, limited access to finance, loan repayment default, among others.

In Ghana, the sector contributes immensely to employment especially in the rural areas, providing  sources  of  income,  contributing  to  the  country‟s  Gross  Domestic  Product (GDP) and foreign exchange earnings through the exportation of commodities such as coffee, oil palm and cocoa. Cocoa is the main export crop and contributes more than 9 percent to the total Gross Domestic Product (GDP) and 30% of total export earnings (Quarmine et al. 2012) with a total cocoa production export of 896,220 tonnes in 2013/2014 production season (COCOBOD, 2014). Major producers of cocoa in the world are Cote D‟ivoire, Ghana and Indonesia with Ghana being the second largest exporter after Cote D‟ivoire.

In Ghana, about 6.3 million people representing about 30% of the total population are employed by the cocoa sector (Gockowski et al. 2013). Cocoa production in the country

occurs in six regions with over 90% of cocoa grown by smallholder farmers. The Western region produces the highest quantity of cocoa contributing to over 50% of the country‟s  total  cocoa  output  followed  by  Ashanti,  Eastern  and  Brong  Ahafo  regions. COCOBOD provides support to cocoa farmers through the purchase and distribution of improved seedlings, fertilizers and agrochemicals at free or subsidized rates. Successive governments through COCOBOD have implemented programmes in a bid to improve the productivity of cocoa farmers in the country. Some programmes undertaken by COCOBOD include CODAPEC and Hi-Tech programme. The CODAPEC programme is aimed at controlling diseases and pests of cocoa in growing areas with the Hi-Tech programme involving the distribution of fertilizers and other agrochemicals at subsidized rates to cocoa farmers.

Even  though  the  agricultural  sector  contributes  significantly to  the  country‟s  economy, the sector is faced with the lack of interest by most financial institutions in investing or allocating funds to the development of the sector due to the perceived high risky nature of agriculture, failure of farmers to pay back loans, among others (AGRIFIN, 2012).

Baffoe et al. (2014) indicate that the lack or limited access to credit by farmers particularly small-scale farmers has resulted in low productivity as farmers are unable to purchase the appropriate inputs for production and has thus reflected in their low income levels. Girabi & Mwakaje (2013) in their study found that farmers are able to improve their agricultural production through access to credit by enabling farmers to purchase the necessary inputs such as seeds, fertilizers, and equipment. To combat this challenge, there is the need to improve productivity of smallholder farmers‟ through adequate investment in the agricultural sector to ensure the growth of the economy. Awunyo-Vitor (2012)

argues that government in playing their role in improving the agricultural sector ensures credit programmes are developed to make available sources of funds to smallholder farmers to increase productivity and enhance food security through the development of policies to promote easy access to financial services by farmers.

The participation of the private sector is essential to the development of the sector through the provision of portfolio of financial services to actors in the agricultural sector. The emergence of microfinance over the years has been increasingly patronized by people particularly farmers both in the rural and peri-urban centers. The existence of microfinance in the agricultural sector has the tendency of improving outputs of farmers by making available access to credit. This statement is supported by Miller (2011) who believes that the incorporation of microfinance in farm production has the potential to increase output of farmers and improve on their living standards. Again, Miller (2011) indicates that for microfinance to succeed in making credit available to farmers there is the need to approach agricultural microfinance in a different way in order to overcome the challenges in providing agricultural credit. Some financial institutions have made efforts in overcoming the challenges faced in lending to smallholder farmers and one notable institution is Opportunity International.

Opportunity International Limited is a leading savings and loans institution in Ghana which is at the forefront of delivering transformational financial services to help transform the lives of their clients. It was licensed by the Bank of Ghana in the year 2004 and has been in operation since then. The main focus of the institution is to provide financial services to the poor and those who are excluded from the mainstream banking. Opportunity International provides credit to micro, small and medium size businesses that

are viewed as the backbone of most developing countries. The company in diversifying its credit portfolio has incorporated the needs of small holder farmers, agro businesses and entrepreneurs in the agro value chain with the aim of improving the lives of  Ghanaian farmers through high yields and thus high incomes. As part of the financial services to farmers, the company provides credit to farmers in kind through the provision of farm inputs (such as fertilizers and agrochemicals) rather than cash. Providing such assets to farmers ensure that the inputs are utilized for the intended purpose and overcome the challenge of limited access to basic farm inputs for production.

Operations of Input Credit Scheme

As one of the financial services to smallholder farmers, Opportunity International has established an input credit scheme which seeks to provide farm inputs in kind to farmers in various areas of crop and animal production. The scheme supports to farmers (particularly cocoa farmers) through the provision of inputs including fertilizers, agrochemicals, protective clothing and spraying machines. Fertilizers in both liquid and granular forms are distributed to cocoa farmers. Other agrochemicals distributed are weedicides, pesticides and fungicides which are mainly in liquid form. Some protective clothing provided is gloves, overall jacket, boots, nose marks and goggles with small sprayers as well as mist blower machines provided by the scheme. To be part of the scheme, a farmer must belong to an FBO within the community. The group serves as security for the credit inputs. Members of the group request for the type and quantities of inputs needed based on recommended product brands by COCOBOD. Farm inputs are mostly requested in the early part of the year (usually between January to March) and delivery done between March and April or earlier depending on when requests are

placed. Distribution of inputs is done at specific places within the various communities according to the request made by individual members of the group.

Payments of the credit inputs are made during the major harvesting period which occurs between September and December allowing for flexibility of payment. Farmers have four months to make payments of the loan. The credit amount consists of the cost of inputs, interest on input cost, distribution cost and a 1% insurance for participant farmers of the scheme. The agricultural staff of the financial institution is responsible for the collection of payment of credit amount by beneficiaries of the scheme in the various communities.

            Problem Statement

Ghana‟s cocoa sector contributes greatly to the development of the economy through the provision of employment and foreign exchange earnings with the sector partly responsible for poverty reduction in the country particularly among rural people (Vigneri & Santos, 2007 cited in Peprah, 2015). The total production of cocoa in Ghana is mainly contributed by about 90% of smallholder farmers in the country by providing the world with quality cocoa beans. Although cocoa is recognized as the major cash crop and the most important export crop, the sector is chalked with some challenges.

Ghana in about sixty-six years ago had occupied the first position as the highest exporter of cocoa beans in the world until it moved to the second position due to challenges including pests and diseases attack, deteriorating soil quality, unfavorable producer prices among others which resulted in low production of cocoa beans (Anim-Kwapong & Frimpong, 2005).

Ghana‟s cocoa yields have remained low over the past years compared to other major producing countries such as Cote d‟ivoire and Indonesia. Dormon et al.(2007) estimated Ghana‟s cocoa yields at approximately 360kg/ha compared to 800kg/ha in Cote d‟ivoire and 1800kg/ha in Malaysia. The low yields have been attributed to the poor control of pests by farmers among others. Subsequent studies by CSAE (2009) indicate that majority of cocoa farmers in the country obtain low yields on an average of 2 ha of cultivated land due to the limited use of fertilizers and pesticides. Ghana and its neighboring country Cote d‟ivoire cultivate almost the same farm size of about 1.7 million hectares but the production levels differ. While Cote d‟ivoire produces about 1.6 million metric tonnes per annum, Ghana produced a little over 700,000 metric tonnes during its 2014/2015 production season (Adjei-Frimpong, 2016). Anang (2015) also attributed the low yields of cocoa farmers to bad weather, outbreak of diseases and aging cocoa tress.

Successive governments in collaboration with COCOBOD have made significant investments in the cocoa sector in a bid to improve productivity of the farmers. Areas of investments include the free mass spraying of cocoa trees to control diseases and pests attack; distribution of fertilizers at subsidized rates; extensive involvement of extension agents to train farmers among others. These interventions in input supply and the effective implementation of policies resulted in achieving the target of one million metric tonnes of cocoa in the 2010/2011 crop season. But interventions made by successive governments have not achieved much in recent times.

The challenge of improper distribution of farm inputs such as fertilizers and pesticides from government or the LBCs to the farmers has resulted in limited access to these inputs

for use. This indicates that there are gaps in the provision of inputs. This claim is supported by complaints made by cocoa farmers in the Ellembelle district of the Western region where a number of the farmers do not get access to these farm inputs for use (cocobod.gh, 2014). Further claims made by Adjei-Frimpong (2016) shows that the CODAPEC and Hi-Tech programme have not fully been scaled up in parts of cocoa growing areas as farmers complained of lack of access to fertilizers and the free mass spraying.

The private sector has emerged to compliment the efforts of government interventions as government interventions have not yielded much. Private sector assistance includes promoting access to credit to farmers to enhance availability of inputs for use. Smallholder cocoa farmers just like any other farmer are challenged or constrained in accessing inputs thus affecting their level of production and incomes. The challenges in the provision of inputs have drawn the attention of some private organizations in a bid to assist farmers with the needed inputs for use to improve productivity and thus resulted in smallholder farmers participating in credit or agricultural interventions to help increase access to farm inputs to enhance productivity. Such notable institution is Opportunity International, which provides farm inputs to smallholder cocoa farmers through input credit rather than cash credit. This intervention ensures the effective use of inputs and eliminates the diversion of credit to other uses other than its intended purpose. The study then seeks to assess whether or not the input credit provided has yielded any successes by improving on productivity of smallholder cocoa farmers in the Amenfi West and Prestea- Huni Valley districts. The foregoing concerns give rise to the following research questions:

1. What factors influence participation in input credit scheme?

• What is the effect of input credit scheme on productivity of participant farmers?

• What constraints are faced by participant and non-participants in the study area?

            Objectives of the Study

The main objective of the study is to assess the effect of Opportunity International‟s Input Credit Scheme on productivity of smallholder cocoa farmers in the Amenfi West and Prestea-Huni Valley districts of the Western region. This objective was addressed using the following specific objectives:

1. To assess the factors influencing participation in Opportunity International‟s input credit scheme
2. To determine the effect of the input credit scheme on productivity of participant farmers
3. To identify and rank constraints faced by participant and non-participant farmers

            Conceptual Framework

The cocoa sector contributes significantly to the economic growth and development of the country. The sector is dominated by smallholder farmers who supply about 90 percent of the country‟s total cocoa output indicating the significance of the contribution of smallholder farmers. The production of cocoa in Ghana has remained low as farmers operate on low levels of productivity as compared to other countries such as Cote D‟ivoire and Indonesia. The low levels of productivity have been attributed to a number

of challenges. Major sources of these challenges are the declining soil fertility of cocoa farms, diseases and pests attack and poor farm management practices. Other major sources are limited use of farm inputs, limited access to credit and inadequate infrastructure.