The effect of access to finance on commercialisation of smallholder maize farmers in Eswatini
Date
2020
Authors
Phiri, Isaac
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
Agricultural commercialisation is defined as the increase in the amount of produce sold
relative to the amount produced. Therefore, agricultural commercialisation leads to more
efficient production, economic growth, food security, and urbanisation in the agricultural
sector. Agricultural commercialisation plays an important role in the sustainability of any
country’s economy. However, financial investment and support is necessary for
commercialisation to be achieved. Finance is one of the major key economic factors that can
boost agricultural commercialisation. Understanding the effect of finance on the
commercialisation of the agricultural sector is important for all relevant stakeholders; and
specifically among smallholder farmers who produce under difficult conditions.
The study determined the effect of finance on the commercialisation of rural smallholder
farmers in Eswatini. The main focus was on agricultural finance and the commercialisation of
smallholder farmers. The main hypothesis of the study was that access to finance positively
influenced the commercialisation decision of smallholder farmers. The data used in this study
was collected from 150 households in the Hhohho and Lubombo regions of Eswatini. Due to
the simultaneous causality of the financial variables, the study faced a potential endogeneity
bias problem. There were other smallholder farmers who chose not to access any form of
finance, but still managed to commercialise. This attribute revealed the endogeneity bias
problem; thus it was important to address it using the endogenous switching regression
method.First, the analysis of variance (ANOVA) results suggested that only farmers who accessed
credit and household savings were significantly associated with a commercialisation decision.
Further analysis using the endogeneity switching model revealed that credit was not
significant; off-farm income, household savings, and insurance were significant in the
commercialisation decision. When financial instruments were combined, the effect of finance
on commercialisation became weaker and not statistically significant enough to influence the
commercialisation activities of smallholder farmers.
The key findings of the study showed that financial instruments were partially correlated and
interdependent, and affected the commercialisation of smallholder farmers. This implied that
finance alone could not bring about agricultural commercialisation, and it might not be
enough to make agriculture sustainable and resilient. Any financial investment in agriculture
needs to be accompanied by other factors – such as adequate farm size, conducive climate,
adequate farm training, available and affordable labour, and smaller households – to
significantly influence the commercialisation of smallholder farmers. The study also
identified the problem of endogeneity and how it could produce false results if not
considered.
The study recommends that different combinations of financial instruments should be
implemented when stimulating commercialisation of smallholder farmers. The financial
instruments should be implemented together with other non-financial interventions.