Key word: Contract farming, adoption, input credit, Logit Model, tobacco

Transcription

1 Determnants of Adopton of Input Credt n the Tobacco Contract Farmng n Tanzana 1, 2 Mzumbe Unversty, Tanzana 3 Copenhagen Unversty, Denmark Bahat Ilembo 1, Joseph Kuzlwa 2, Arne Hennngsen 3 Abstract The study examned the determnants of small scale tobacco farmers adopton of nput credt n the tobacco contract farmng n Tanzana. Input credt s very sgnfcant as t can ncrease the ablty of small holder tobacco farmers wth no or lttle savngs to acqure needed agrcultural nputs. Contract farmng confguraton s seen to be a relable source of obtanng nput credt even though some farmers could adopt t and others could not. A sample of 300 small holder farmers was randomly selected for the study; Data was collected from tobacco producers usng a structured questonnare. The data was analyzed wth Logt Model usng STATA software. The results from the study revealed that Offfarm ncome postvely nfluences adopton of nput credt whle farm sze and wall type negatvely nfluences the adopton decson. Household sze, age of head of household, age square, farmng experence and educaton do not sgnfcantly nfluence adopton of nput credt. These results were consstent wth a pror expectaton n terms of drecton of the relatonshps and emprcal evdence from the lterature on adopton decsons n agrculture. We could also manage to obtan subjectve reasons that affected the adopton decson to supplement on the quanttatve results. We establshed that the avalablty of nformal lendng opportuntes, nature of the tobacco contract farmng, the need for ndependent farmng and no need for credt substantally affected the adopton decson. The study therefore recommends that the drecton of nfluence of the adopton determnants should serve as a gude n creatng favourable busness envronment n the tobacco value chan n the future; the government through relevant authorty should relook the concept of ndependent farmng n the tobacco producton as at present, t seems as f t s not possble for small holders to produce wthout contract farmng whle n actual fact are capable of dong so. We suggest also that the nformal lendng nsttutons needs to be encouraged by allowng them a conducve busness operaton envronment n servng those farmers who are not wllng to be ted up wth contractual agreements that sometmes poses hgh transacton costs. Key word: Contract farmng, adopton, nput credt, Logt Model, tobacco 1

2 1. Introducton Many of the world's poor stll drectly or ndrectly depend on agrculture for ther lvelhoods, most of them as small scale farmers (Fscher and Qam, 2012). However, these small scale farmers uses low agrculture technologes snce adopton of modern technologes s relatvely expensve and they can not afford to self-fnance. As a result, the utlzaton of agrcultural technologes has been very low. It s argued that enhanced provson of credt would accelerate agrcultural producton and the use of modern farmng technologes (Brquette, 1999). At the same tme, there have been many mperfectons n both nput and output markets coupled wth nsttutonal defcences that hnder the small scale farmers from access to credt, machnery servces and nputs requred, nter ala, for effcent producton. In partcular, small holder farmers face many constrants that mpede them from takng advantage of market opportuntes. Wth few assets, small holders often have lmted access to servces, ncludng effectve extenson and rural credt, whch are crucal pre condtons for upgradng producton systems (Wggns, Krsten and Llamb, 2010). Contract farmng s seen as an alternatve that can address these defcences. Contract farmng s an economc arrangement entered nto by partes n quest of common advantage. In some nstances these arrangements do serve poor farmers who would not otherwse be able to access remuneratve agrcultural markets. There are popularly two forms of contracts; formal and nformal contracts (Guo and Jolly, 2008). Formal contracts are wrtten contracts between buyng company and farmers, where the rghts and oblgatons of each party are strctly defned. Informal contracts are unwrtten but bndng agreements between partes nvolved; commonly a farmer and hs market ntermedary, whch could be a trader for nputs, a cooperatve socety whch he s a member of, on provson of agro nputs or the marketng or both. Compared to ndependent farmers, contracts are relatvely effcent n ntroducng new producton technques, gvng farmers to nputs at lower prces and hence leadng to hgher farmer ncomes per unt output. Internatonally, there s a rapd ncrease n the agrcultural products produced under contracts n both developng as well as developed countres; ths s evdenced by the growng number of complex contractual arrangements replacng spot markets (Cook and Chaddad, 2000). Increasngly, agrcultural systems are becomng organzed nto tghtly algned chans and networks where the coordnaton of producton, processng and dstrbuton s closely managed. In these modernzed systems, the once domnant role of spot markets as a mechansm to harmonze transactons s beng replaced by alternatve forms of vertcal coordnaton, ncludng strategc allances, full ownershp and contracts (Da Slva, 2005). Recent trends n the nternatonal economc envronment, ncludng changng consumer demands and governmental polces, also have resulted n an ncrease n the practce of contract farmng, especally n developng countres. In addton, the prolferaton of nsttutonal arrangement (va forward contracts) for producton and marketng of agrcultural commodtes n developng countres, ndcates the commtment to provde agrcultural commodty of a type, at a tme and a prce, and n the quantty requred by a 2

3 known buyer (Sngh 2002; Oya 2012). These trends ndcate that contract farmng n the agrculture value chan has a potental to lower costs by mprovng total factor productvty and ensurng qualty through the chan; controllng rsks assocated wth markets and safety; and enhancng responsveness to demand. Key and Runsten (1999) consder contract farmng as havng the potental to ncorporate low-ncome growers nto the modern sector. It provdes a means to manage complex producton processes wth greater precson than s possble through arm's length market transactons (Guo et al. 2007). Lterature reveals that, both small and medum szed farmers n developng countres usually face market constrants or mperfectons, such as restrcted access to credt (Segura, 2006). In addton, poor market nformaton and other transacton costs derved from weak market ntegraton make these small holders less compettve n the new open market economy. As a result ths could hde the potental contrbuton of small holders not only to the rural areas but also to the natonal economes at large. In developng economes, contract farmng s consdered as means to overcome mperfectons n nput and output markets or nsttutonal defcences by provdng credt, seeds, machnery servces, human captal and market access to farmers (Guo et al. 2007). As for credt, t has been vewed as one of the bg ncentves for small holders n jonng contract farmng schemes, snce t s a vtal part of contract farmng and at tmes t s the only way the small holder can enter the market (Baumann, 2000). Whle contract farmng promses sgnfcant benefts to small holders, some lterature has ponted out scenaros n whch members of the rural populaton have realzed only lttle gans (see for example Glover and Kusterer, 1990; Lttle and Watts, 1994). In ths context t has been vewed as beng a tool for agro ndustral frms to explot an unequal power relatonshp wth small holders. Accordng to Key and Runsten (1999), whle farmers usually enter nto contracts voluntarly, they may, over tme, nvest fxed resources nto producton or alter ther croppng patterns so as to become overly dependent on ther contract crops. When ths happens, small holders face lmted ext optons and reduce barganng power vsa-vz the frm, whch may force them to accept less favourable or explotatve contracts. In ths regard, small holders wll have to be very careful n the choce of nput credt to adopt and therefore the agro ndustral frm to contract wth so that the potental benefts of contract farmng are realzed. Ideally, expendture on agrcultural nputs must be ncurred durng the plantng and the growth perod of the crops whle returns are receved several months later after harvest. In ths respect, to fnance the purchase of nputs, the farmer must ether dp nto savng or obtan credt (Dagne et al. 2000). Therefore access to credt can sgnfcantly ncrease the ablty of small holder farmers wth no or lttle savngs to acqure needed agrcultural nputs. Tobacco contract farmng n Tanzana targets manly provson of agro nputs and marketng. After lberalzaton of agrcultural nput supply n 1994, the role of nput marketng was to a large extent left to prvate companes. Ths s the tme when tobacco buyng companes could enter nto contract wth cooperatves to drectly supply the nputs and repay back after sale through commtment made by smallholders who joned the cooperatve socety. Snce 2009, the role of nput supply s drectly beng done by the 3

4 cooperatves, popularly n other lteratures called "ntermedares" (e.g. n Guo and Jolly, 2008). In most cases the nvolvement of ntermedares provde a lnk between agrbusness and small holders whch forms a contractng model popularly known as "frm+ ntermedary + small holder". In ths contract confguraton, small holders would choose to jon voluntarly and enjoy the full beneft of contract farmng. The relevant queston becomes, why some farmers choose nput credt and others do not? To our knowledge, there s no study n the lterature that has examned ths queston emprcally. The overall objectve of ths chapter s to determne (emprcally), possble factors that determne the adopton of nput credt n the tobacco contract farmng n the chosen study area based on the survey data collected n The fndngs from the study shall have polcy mplcatons for promotng the use of credt nputs under contract farmng arrangement whch accordng to the lterature, contract farmng s a vable opton n solvng the problem of access to credt whch could have been used to acqure agro nputs enough for producton. The rest of the paper s organzed as follows; n secton 2, we start by presentng materals and methods used n the study followed by the adopton theores n secton 3. Secton 4 bulds up the conceptual framework and estmaton strateges followed by the presentaton of the results n secton 5. The paper concludes n secton Materals and Methods The study used data obtaned from a survey conducted between August and September, A structured survey questonnare was prepared and admnstered by traned enumerators wth the close supervson of the researcher. Multstage samplng was used where n the frst stage we systematcally selected prmary cooperatve socetes from a lst that was obtaned from the dstrct councl. Ths provded the sample for our analyss whch covered only tobacco farmers that are members of a cooperatve socety, whle ndependent farmers are not ncluded. In the ultmate stage, the unts of nqury were obtaned usng smple random samplng snce they all had smlar characterstcs. In obtanng a sample sze, a lst of potental respondents, based on ther membershp to the prmary cooperatve socety was compled and then smple random samplng was used to ensure that each of the subjects had equal chance to be ncluded n the study. In dong that, the researcher lsted the study of the populaton, assgned a number to each element and thereafter the desred sample sze was selected randomly by usng table of random numbers. In nstances where the randomly selected respondent was not avalable, the next avalable tobacco farmer was selected. The desgn made possble for obtanng a sample of 300 farmers. The data collected valuable nformaton on several varables ncludng soco- economc, crop specfc nformaton (producton and sales), nsttutonal, ndvdual and demographc factors relevant for adopton. Qualtatve nformaton was also asked through open questons and mostly related to value chan coordnaton and contracts to supplement quanttatve data and to enrch the results obtaned for better polcy recommendatons. 4

5 2.1 Data Entry and Prelmnary Analyss After a vsual examnaton of the questonnare, responses from the completed questonnare were entered nto SPSS (Statstcal Package for Socal Scence) program. We encoded open- ended responses before were also entered nto SPSS. To ensure that any naccuracy due to data entry s omtted, frequency dstrbuton for each varable was run and data normalty was checked at ths stage. After correctng for any data entry errors, frequency dstrbutons provded the major data nput for the tables used to descrbe the respondents. Before proceedng to analytcal analyses, unvarate data analyss technques provded useful descrptve statstcs and varablty among the varables that nformed further analyses. Unvarate analyss was mportant n dentfyng measures of central tendency for the data and how varous aspects of the data are related. Descrptve analyss was manly used to descrbe the soco demographc characterstcs of the respondents ncludng some farm characterstcs to easer econometrc modellng. 3. Adopton Theores Adopton s not a fnal ncdent of change but rather a decson makng process. In agrcultural nnovaton s tradtonally conceptualzed to be the mental process through whch an ndvdual passes from frst learnng about an nnovaton to fnal adopton (Mutandwa et al., 2007). Adopton patterns n agrculture, from a large body of emprcal evdence have been dentfed, for most part of the farmers choose to adopt nputs sequentally, adoptng ntally one component of the package and subsequently addng other components over tme, one at a tme n some nstances. It s seen as the decson by an ndvdual to become a regular user of the new dea (Kotler and Armstrong, 1994). There s no theory that specfcally deals wth nput credt adopton, yet the avalable theores whch deals wth technology adopton are stll relevant when we vew them n a global context. In theores about dffuson of technology, the early contrbuton by Beal and Bohlen s (1957) provded fve stages of technology adopton; awareness, nterest, evaluaton, tral and fnally adopton. In ths case comparson between dfferent farmers can be made. For example, one farmer may be n the awareness stage whle another farmer may be n as far as the nterest stage of adopton. As a result we may characterze the frst farmer as beng n the earler stages of adopton whle the second one s closer to make adopton decson (nterest stage). It s therefore possble to notce dfferences n adopton tmngs among farmers as also suggested by Rogers (1995). It s also common to note that the number or percentage of adopters tend to be small at the earler stages and ncreases wth tme but wll level off as greater partcpaton arse. It s thus expected that ths pattern wll be smlar at all levels of the agrcultural technology adopton. Behavoural theores however, are useful and they focus on the ndvdual analyss level, where human behavour, rather than organzatonal behavour or combned economc behavour has ts mpact. In ths branch of behavoural theores, behavoural economcs has been used to descrbe all sorts of non- economc nsghts to explan and predct behavour of an ndvdual. It argues that n many stuatons a set of consstent bases s found that results n ndvduals dsplayng behavour dfferent from the behavour that would be predcted by ratonal choce models. These bases are generally based on heurstcs smple rule of thumb whch people use n day-to- day decson makng. Other nsghts lke socal norms, group behavour, ethcs, preference for farness and so on are 5

6 also part of the analyss. It has been argued that farmers are not only drven by monetary consderatons but also changes ther behavour n reacton to moral and socal one. As put by Mzough (2011), moral concerns are those related to ndvduals ethcs, such as personal satsfacton and socal concerns are those whch shape the ndvdual s behavour n relaton to reference group that one belong, such as smlar farmers n the same area. Snce adopton s sad to be an ndvdual, nternal decson, ths study sees the relevance of usng behavoural economcs theores n predctng farmer s adopton decson to nput credt. 4. Conceptual Framework and Estmaton Strateges In ths secton we dscuss more formally the relevance of the choce varables to be used n modellng the adopton of nput credt by small holder farmers. We consder a case where contract farmng s ntroduced n the area wth full package nformaton, to nclude market assurance and the avalablty of nput credt. When small holder farmer hears about t, he or she s confronted wth a choce of whether to adopt the entre package or not. In order to partcpate n any credt program, an ndvdual frst needs to know a place where he or she can borrow before decdes to apply for loan (Osl and Okten, 2004). Ths s not the case wth credt system surroundng tobacco producton n Tanzana because t s all produced under contract farmng arrangement and therefore farmers know where nputs can be obtaned. Ths excludes our econometrc framework from the need to capture sequental nature n obtanng nput credt and we drectly embark on modellng factors for adopton of nput credt use n the contract farmng confguraton. We have notced endogenety problem and we have excluded all the varables that drectly related to the producton durng partcular season we conducted the study. In analyses that use farm data from cross sectonal surveys and whch are related to management decsons lke nvolvement n certan farmng program n our case, bnary responses are often encountered because of the categorcal nature of the decsons. When a new servce s ntroduced, farmers are confronted wth a decson to whch he or she may react postvely or negatvely. Ths s manly due to the fact that farmers do not have the same resource endowment; they have strctly dfferent objectves and moreover dfferent utlty preferences. Such farmers may also have dfferent levels of lteracy and even socal backgrounds. In ths regard, t s possble to fnd some farmers decde to use the credt whle other farmers may not. Ths leads nto a bnary choce decson and n such a crcumstance, many responses may take a unt value for postve decsons and the remanng observatons may take a zero value. We use Logt model whch has the ablty to overcome shortcomngs of other models as t has the powers to generate bounded probablty estmates for each observaton (Tamb et al. 1999). The approach used to analyze adopton n ths paper s based on bnary choce models whch descrbe the probablty of farmers' choce between the two mutually exclusve choces; adopt or not adoptng basng on ther evaluaton on utltes obtaned on these U Y, X be the utlty functon of farmer, choces as put by Umouh (2006). If we let where Y s a dchotomous varable denotng whether a farmer adopted an nput credt 6

7 package. The bnary choces would therefore be; 1 f Yes and zero otherwse. X s a vector of the explanatory varables. The farmer wll choose to adopt f such a choce mples a hgher utlty level compared to not adoptng: That s; U Y 1, X U Y 0, X or U Y 1, X U Y 0, X 0 Consequently, the probablty that a farmer chooses to adopt an nput credt can be wrtten as Pr ob Y 1 Pr ob U 1 U 0 Pr ob U Y 1, X U Y 0, X. As earler stated, we quantfy the nfluence of the factors ncluded n the study on adopton by performng the Logt analyss. Based on the above revews, the conceptual framework for ths study ndcates the varables whch are hypotheszed to have an nfluence n adopton of nput credt by smallholder tobacco farmers and the proposed drectonalty of these relatonshps. The dependent varable n ths study (Y) wll be adopton of nput credt. Ths wll be related to the ndependent varables ncluded n the followng conceptual framework. Fgure 1: Conceptual framework Household sze Age Farmng Experence Total Farm Sze Adopton of agro nput credt Farmers Wealth Educaton Off-farm ncome Source: Author's construct, Model for adopton behavour In adopton studes, response to a queston such as whether a farmer adopted technology, servce or agrcultural program could be yes or no, ths s a typcal case of qualtatve dchotomous varable. However, the drvers for adopton can be expressed both qualtatvely and quanttatvely. When the response varable s contnuous, one could only use lnear models for estmaton such as the Ordnary Least Squares to determne the effects of the explanatory varable on the response varable. Unfortunately, ths model 7

8 suffers the lmtaton that ts dsturbance term s potentally heteroscedastc and the model probablty predctons are not necessarly bounded wthn 0 and 1 (Pndyck and Rubnfeld, 1981; Greene, 1994). In ths regard, when the response varable s dchotomous, lnear probablty models can not be used. Gujarat (1988) proposed the use of probt or Logt models as remedes for ths problem. * Theoretcally, n specfyng a Logt model, Let Y X where s a latent response varable, s a vector of parameters to be estmated, s a vector of explanatory varables and s the error term. In practce, s unobservable and we observe only a dummy varable whch s defned n ths case as; Accordngly, the probablty of nput credt adopton s denoted as * Pr ob Y 1 Pr ob Y o 0 = Pr ob X = F X F 1 X where F s the cumulatve dstrbuton functon (CDF) of the error term. The Logt model can therefore be employed to estmate probablty of farmer's adopton of nput credt and can be expressed as; X 1 e Pr ob Y 1/ X X X 1 e 1 e In case of random samplng where all the observatons are sampled ndependently, the contrbuton of the th observaton s wrtten as ; and therefore, the lkelhood functon wll be gven as; If we take logarthm to both sde and replace becomes; Log L n Y X log 1 e n X P by e X 1 e X, the log- lkelhood functon We notce that, n ths model wth bnary dependent varable, the parameters ' s are not nterpreted as the margnal effects on the dependent varable but rather the margnal dp effect on the condtonal probablty s gven as j whch gves the rate of change n dx the probablty as a result of a unt change n the dependent varable and whch accordng P 1 P. The econometrc equatons and to Mukherjee et al (1998) s defned as representatons used n ths study are derved from Hll et al. (2008) and Marano et al. (2012). j j 8

9 Table 1: Descrpton of varables n the Logt Model Varable name Varable type Varable descrpton HHSIZE AGEHH AGE 2 EDUCHH EDU1 EDU2 EDU3 EDU4 FEXP TFASIZE OFFINC WMCBL Contnuous Contnuous Contnuous Bnary Bnary Bnary Bnary Contnuous Contnuous Bnary Bnary Household sze(n numbers) Age of household head (n years) Square of the age of household age Head of household level of educaton 1= no formal educaton, 0 otherwse 1= prmary educaton, 0 otherwse 1= secondary educaton, 0 otherwse 1= tertary educaton, 0 otherwse household head's tobacco farmng experence ( n years) Sze of household farm- land (n acres) Farmer's ncome outsde tobacco producton (1=Yes, 0= No) Wealth ndcator based on type of house walls (1=Yes, 0= No) 5. Results and Dscusson 5.1 Characterstcs of Sampled Respondents Table 2 below gves a summary of farmers characterstcs used n the analyss for the entre sample of 300 respondents accordng to ther responses n relaton to adopton of nput credt. In ths prelmnary analyss, ch- square test was used to test for the relatonshp f exsts between some categorcal/ bnary varables used (e.g. educaton and martal status). Moreover, t- test was also used to ascertan whether the mean values of farmer's varables between adopters and non-adopters of nput credt were sgnfcantly dfferent. The ch square results have shown that all the two categorcal varables are statstcally nsgnfcant at 5 per cent level, meanng that, they are not related to adopton of nput credt. Prmarly, decson to adopt nput credt package s not related to martal status of a person nether hs/her level of educaton attaned. The t- test results are also not statstcally sgnfcant at the 5 per cent level, except for varable "farm sze". Ths demonstrates that the mean value of farm sze owned by the non- adopters s sgnfcantly hgher than the farm sze owned by adopters. Out of 300 sampled household heads, 246 were adopters of nput credt package n the last producton season. Wth regard to educaton, the respondents were dvded nto four groups, the groups ncluded those who had no formal educaton at all, 29 (9.7%); those wth prmary educaton 249 (83%) who formed the large part of the sample and 20(6.7%) who had secondary educaton. There were only 2 (0.7%) wth above secondary educaton. In general, the sample was domnated by farmers wth prmary educaton of whch 202 (67.3%, n= 300) were adopters of nput credt and 47 ( 15.7%, n = 300) nonadopters of nput credt. The proporton of adopters wth no educaton s 10.6% approxmately two tmes hgher than the non- adopters (5.6%). In terms of the tertary educaton, there s a balance between non-adopters and adopters. 9

10 Large per cent of the farmers regardless of whether they adopted nput credt or not are marred (93.7%) wth very few unmarred. However, the ch - square results have ndcated that, there s no relatonshp between martal status and adopton of nput credt 2 package 6.343, p value The average farm sze for adopters was found to be 6.04 acres whle that of the nonadopters were found to be 7.2 acres. Ths ncluded the land whch was planted crops other than tobacco. Table 2: Profle of the respondents Adopters ( N ) Count ( n 1) n 1 % to Non- adopters ( N 2 54 ) Count ( n 2 ) n 2 % to All respondents ( N 300 ) Subtotal n 1 n 2 % to N Statstcal test Educaton No formal schoolng Prmary educaton Secondary educaton Tertary educaton Age Household sze Sg.= t Sg.= t Sg.= Martal status Marred Separated Dvorced Never marred Wdowed Sg.= Farm experence Sg.= Farm sze Sg.= Note: Entres for varables Age, Household sze, Farm experence and Farm sze are entered as average. 5.2 Descrptve Statstcs on Acreage Producton All tobacco sampled farmers regardless of whether they partcpated n contract farmng arrangement n the prevous producton season, were asked nformaton on number of acres harvested tobacco, the harvest per acre n klograms and total harvest all acres. It 10

11 was revealed from the survey data that, the average harvested acres was 2.2 for nput credt users wth the standard devaton and 2.7 acres for non nput credt users wth a standard devaton of The average klogram per acre was found to be for nput credt adopters and 619 for non nput credt adopters wth the standard devaton of and respectvely, mplyng that there s a very mnmal varaton n producton per acre between the two groups. However, varatons n producton may be nfluenced by numerous factors ncludng ranfall, use of fertlzer and ndvdual agrcultural knowledge on the crop. The average fertlzer use dffered between adopters and non- adopters, t was found that non- nput credt adopters used approxmately 180 klograms per acre compared to 140 klograms for the adopters. Table 3 gves descrptve statstcs on farmers' comparablty n producton. Table 3: Descrptve statstcs on the nformaton on acreage producton Varable Input Credt adopters (n = 246) Non- nput credt adopters (n = 54) Mn Max Mean Std.dev Mn Max Mean Std.dev Acres harvested Tobacco Producton (Kgs/acre) Prce/ kg Fertlzer use (Kgs.) Source: Research feld data, Farmers' dependency on tobacco producton Small holder tobacco farmers n Urambo depend entrely on tobacco as the only cash crop for ther economc survval. Even though they produce grans, ths was manly for home use. More than three quarters (82.3%) of the farmers cultvated tobacco n 1-5 acres n the 2011/2012 season. Others had between 6-10 acres whle very few (1%) had more than 10 acres. A sgnfcant number of farmers who cultvated less than one acre were also observed, these were 41 out of 299 farmers. All the farmers owned land and there was no sharecroppng notced. Table 4: Sze profle of farms growng tobacco n Urambo 2011/2012 Category (acres) Count Proporton (%) < > Total Source: Research feld data, Determnants of smallholders' adopton of nput credt The descrptve statstcs have shown a very mnmal sgnfcant dfference between adopters of nput credt and the non adopters n terms of fertlzer use, acreage producton 11

12 and even prce earned for tobacco sale (see Table 3). These calls for further analyss where we want to see what are the drvng factors for the adopton of nput credt package. We frst look at the Logt model results before examnng subjectve reasons as stated by respondents n the ntervews to nvestgate factors that nfluence smallholder tobacco producers' adopton of nput credt. The factors are estmated usng maxmum lkelhood estmaton technque. Table 5 presents the estmated results of the Logt model. Table 5: Maxmum lkelhood estmates of the Logt Model Varables Expected sgn Coeffcent Sg. Std. error HHSIZE +/ AGEHH +/ AGE 2 +/ FEXP TFASIZE +/ * WMCBL * EDU OFFINC +/ * Constant Log lkelhood= ; Number of observatons= 300; LR Ch- square = 33.65; Prob > Chsquare = and Pseudo R- square = * 5% sgnfcant level The maxmum lkelhood estmates of the parameters n the logstc regresson characterzng the behavour of tobacco farmers towards adopton of nput credt are shown n Table 5. The lkelhood rato ch- square statstc s equal to wth 8 degrees of freedom rejects the null hypothess that the parameters of all explanatory varables are jontly equal to zero at 5 per cent level of sgnfcance. It can be concluded that the explanatory power of the logstc model s satsfactory and therefore the model can be used to explan the probablty of adopton nput credt by the small holder tobacco farmers. Results from Table 5 shows that one varable, off- farm ncome postvely nfluences adopton of nput credt and two varables farm sze and type of wall negatvely nfluence the adopton, whle fve varables household sze, age of household, age square, farmng experence, educaton do not sgnfcantly nfluence adopton of nput credt. The fndngs on off farm ncome, farm sze and type of wall agree wth our postulaton whle the rest of the varables contrast. Wth farm sze for example, both old and recent lterature s n agreement that t s the frst and probably the most mportant determnant of agrcultural nput credt adopton. Its effect has been found to be ether postve (Feder, Just and Zlberman, 1985; Kasenge, 1998), negatve (Harper et al., 1990; Yaron, Dnar and Voet, 1992) or neutral (Mugsa - Mutetkka et al. 2000). Farm sze can affect and n turn be affected by the other factors nfluencng adopton. Tobacco producton requres ntensve use of agro nputs for ts producton and these nputs are manly fertlzer and agro chemcals. There are also packng materals lke jute twnes and hessan cloth of whch 12

13 all are ether purchased by cash or obtaned through contract farmng as nputs on credt. Small holder farmers wth large farm sze would therefore need to have suffcent nputs to carter for all acres under producton. Ths s only possble for those farmers who are not budget constraned, snce the cost of nputs are very hgh, otherwse such farmers wth large farm sze would defntely need nput on credt to meet ther producton needs. The negatve coeffcent mples the reverse relatonshp that farmers wth large farm sze are less lkely to adopt nput credt. Ths mght be true because farmers wth large farm land are also rch farmers n rural areas havng suffcent lqud fnancal assets and who are thought to have many sources of fnance, and therefore are lqud enough to self fnance agrcultural actvtes. Such farmers may not need nput credt for tobacco producton. In ths case large farm sze may not necessarly serve as a drver for adopton of nput credt. We reject our asserton that, the larger the farms sze the most lkely decson to adopt nput credt. Educaton enhances a farmer's ablty to receve, nterpret and understand new nformaton (Huffman, 1980). The nsgnfcance of the EDU1 dummy varable ndcates that farmer's educaton does not affect adopton of nput credt whch s contrary to our asserton. Whle we understand from the lterature that farmers wth basc educaton are capable of recevng, process and understand nformaton that comes out regardng any new farmng programme or technology, our study s nconsstent wth Caswell et al (2001) and Asfaw & Admasse (2004) when argued that, educaton s thought to create a favourable mental atttude for acceptance of new practces especally of nformaton ntensve and management ntensve practces. It s therefore lkely that farmers who have obtaned at least basc educaton, whch s common n the rural farmng populatons n developng countres, would be expected to adopt nput credt programmes than those who have never obtaned formal educaton. Regardng off-farm ncome (OFFINC) and type of wall (W MCBL), these varables are all statstcally sgnfcant but wth postve and negatve coeffcents, respectvely as were hypotheszed n the prevous secton. For the varable OFFINC t mples that farmer's off- farm ncome may postvely affect nput credt adopton. Ths could be probably the case as lqud farmers may have confdent on the repayment of the nput loan wthout entrely dependng on tobacco harvest unlke small holder farmers who depends entrely on tobacco producton. Another way of argung on off-farm ncome could be that farmers wth surplus funds under ther own control would be more lkely to borrow due to ncreased confdence on repayment. Ths fndng contradcts wth Hu et al. (2011) when argung that households wth less budget constraned would be less lkely to borrow. On the other hand, walls made of concrete blocks ndcate wealth n rural areas and n ths matter can be used as a sgn to depct the borrowng behavour of small holder farmers. We have found that ths varable s sgnfcant though has negatve sgned coeffcent whch mples that rch farmers are less lkely to borrow and therefore may not adopt the nput credt programme. One would also argue that farmers wth hgher asset values may be less lkely to borrow snce are not budget constraned and therefore are capable of self-fnancng ther agrcultural actvtes. 13

14 The coeffcent of farmng experence s nsgnfcant. The age and squared age of household head are also nsgnfcant whch ndcates that the rate of adopton of nput credt does not depend on the age. Ths does nether confrm the studes by Langyntuo and Mulugetta (2005), Barham et al (2004) and Badu- Forson (1999) who concluded that young farmers are more receptve towards newly ntroduced agrcultural practces than ther older counterparts nor the study of Mgouna et al (2011) who revealed that older farmers are more wllng to adopt new agrcultural nnovatons than young farmers as a result of age based knowledge ganed and probably experence accumulated over years' dfferences. The nsgnfcant relatonshp between household sze (HHSIZE) and adopton of nput credt suggests that the household sze and adopton of nput credt are ndependent. Ths s nconsstent wth a study on accessblty of mcrocredt on rural households n chna conducted by Hu et al. (2011) that found a negatve relatonshp between household sze and credt access by argung that large households tend to have low repayment capacty resultng from the smaller future expected ncome per capta whch lowers the probablty of borrowng. 5.6 Why not adoptng? After we have done the emprcal analyss to determne drvers for nput credt adopton, t was worthy to present reasons for not adoptng nput credt as were captured durng qualtatve ntervews. It has been common practce to supplement quanttatve observatons wth qualtatve data for enrchng the analyss. Ths secton presents three strong reasons as were observed from farmers durng ntervews. The reasons for not partcpatng on nput credt program are summarzed nto three man aspects; frst s the avalablty of nformal lendng opportuntes, second s the nature of tobacco contract farmng tself and thrd s the need for ndependent farmng. The three reasons are dscussed n turn startng wth the avalablty of nformal lendng opportuntes. Informal lendng opportuntes In fndng out why n same contract farmng confguraton, some farmers adopted nput credt and others dd not, we could not gnore the role of socal networks n nfluencng the partcpaton n any credt programme. A farmer may expose a fellow farmer n hs network to the avalable opportuntes, whch ths fellow farmer was prevously not aware of, for example some credt faclty offered at very low nterest rate and mnmal collateral requrements. Durng the qualtatve ntervews, we could dscover from farmers that there were varous credt sources n whch farmers could obtan loan from to support ther agrcultural actvtes. Apart from formal fnancal nsttutons, farmer could obtan loan from frends because of trust and ther well known n the vllage. Ths s consstent wth Wydck et al (2009) when tred to understand the nfluence of socal networks on credt access and stressed that reputaton wthn networks may serve as a knd of socal collateral for loan. Also, n accessng nformal loans, the exstence of money lenders who lve n the same vllage wth farmers wll often themselves vst ther clents, and thereby becomng more accessble and ganng frst- hand nformaton of ther credtworthness. Ths bulds trust and reduces the chance for not lendng such 14

15 farmers who would normally need loans from money lenders. As good source of nformaton, farmers through socal networkng may have nformaton on varous possbltes to fnance agrcultural producton wthout dependng on nput credt obtaned from contract farmng system. Ths s partcularly the case wth rsk averse farmers who wll always lke to transfer rsk to the other part of contractng. Nature of tobacco contract farmng Tobacco contract farmng n the area follows one among the two organzatonal models by Guo and Jolly (2008) whch s "frm + ntermedary + small holder". In ths model as t s operatng n Tanzana, small holders are requred to form a group of between 5 and 10 as a pre- requste n contractng wth an ntermedary for agro nputs for every partcular producton season. The groups are formed based on prevous repayment and commtment hstory and character assessment done among group members themselves. In ncdences where a member n a group fals to fulfl contract oblgatons, the loan repayment becomes the entre group responsblty and therefore each farmer, regardless of how commtted he/she was n fulfllng the contract oblgatons, wll have to bear a repayment burden. Ths has been a very bg problem and most farmers would not lke the "collectve responsblty" arrangement n the tobacco contract farmng. It has so far cropped up the need for ndependent farmers who would not be attached to any group nether obtanng nputs on credt from ntermedares. We learned from the qualtatve survey that, a reasonable number of small holders ntervewed were n favour of beng ndependent farmers but they are forced by the tobacco producton system n the country amed at controllng the problem of sde sellng whch has been echoed to have effect on the tobacco supply expected by an ntermedary served as an mmedate market sgned a contract wth merchants. Problem of sde sellng s serous and apart from affectng the tobacco supply t creates huge unrecovered loans whch threaten the sustanablty of the ntermedares commonly referred to n ths thess document as prmary cooperatve socetes. Based on the above explanatons, we may conclude that small holders who won't lke the present contractual confguraton would defntely be among the nonadopters of nput credt under the contractual arrangement. A need for ndependent farmng The other reason that was captured as a drver for some small holders not partcpatng nto the nput credt arrangement s ther need to be ndependent farmers, partcularly after they realzed a falure of the nput credt system. Independent farmers n the tobacco producton context refers to those farmers who have own captal nvestment and would lke to contract drect wth merchants. These are the ones that on ther opnons, they thnk the present contract system n the tobacco producton does not work well as reported by one of the farmers who quoted sayng "I would prefer to be an ndependent farmer because I wll not rely on anybody, you smply sell your tobacco and get pad promptly, you do not need to wat untl other group members have sold ther". Such farmers beleve that, wth the system of formng groups n order to access nputs on credt, t s very hard to work under collectve acton, they cannot wat others n order to 15

16 get ther payments and they would not lke to be lmted n quantty to produce whch therefore lmts number of acres to be planted and ultmately the amount of agro nputs to be used. The contracts specfy the amount of tobacco to be suppled by each producer whch has to reflect the demand of an ntermedary. Such requrements dscourage partcpaton nto nput credt programme especally for farmers who are capable of producng more acres but they are lmted wth the supply requrement. No need for nput credts Fnally, apart from the reasons stated above whch were all captured durng the ntervew, t was also revealed that some farm households have suffcent lqud fnancal assets and they can buy nputs wthout nput credts. Such farm household owns cattle n large number, keeps bees and are nvolved n varous ncome generatng actvtes as ther sources of fnance and therefore are capable n self fnancng the agrcultural actvtes. These were not n favour of nput credt system at all. 6. Concluson The chapter was meant to determne and provde assessment of the drvers for nput credt adopton amongst small holder tobacco farmers n Tanzana usng an adopton framework and Urambo dstrct as a mrror mage. Data were collected from among 300 small holders scattered across the dstrct and who are regstered members to the cooperatve socety agan scattered all over the dstrct and whch organze farmers for the crop producton. We determned the factors for nput credt adopton usng Logt Model and obtaned that out of the eght varables used, farm sze, type of walls and offfarm ncome were statstcally sgnfcantly affect the adopton decson. On the other hand, fve varables namely farmng experence, educaton, age, age squared and household sze were statstcally nsgnfcant. The fndngs from ths chapter have presented a pcture of nput credt adopton as t s based on a sngle cross sectonal data set. We opne that, a follow up survey that captures the adopton varables over tme wll enable other researchers to conduct a smlar study usng longtudnal or panel data set. Ths s beleved to provde a much more comprehensve analyss of farmer s adopton behavour of nput credt over a long perod of tme n the study area to have a general understandng on what are really drvers of nput credt adopton n the tobacco producton. Future research may stll want to nvestgate and nclude, where possble, other personal varables, whch are emprcally or theoretcally known to nfluence the nput credt adopton decson. However, even though the quanttatve results may sometmes not havng detaled nformaton, we could also manage to obtan subjectve responses as to why some farmers adopt nput credt and others do not; we establshed that the avalablty of nformal lendng opportuntes, nature of tobacco contract farmng, the need for ndependent farmng and no need for nput credt substantally affected the adopton decson. The followng four conclusons from qualtatve fndngs that supplement our quanttatve results can therefore be careful drawn; 16

17 Frstly, we see contract farmng as an avenue for small holder farmer's n mprovng ther productvty, market assess and ncomes. However, nature of tobacco contract farmng may dstort ths fundamental farmer's dream. We have realzed from the fndngs that farmers would not lke the present contract farmng confguraton where "farmer groups" becomes a compulsory pre requste for contract farmng partcpaton. It s easy for them to contract ndependently than beng n a group as the collectve responsblty arrangement had never worked well. They are dscouraged by the way are watng for payments untl all other group members sell ther tobacco and the way they carry out repayment responsblty on behalf of any lazy group member. Farmers would always lke to be ndependent and contract drectly to ether buyers or through an ntermedary. Secondly, whle we apprecate the role of credt n farmers' producton, we notce that there are no enough lendng nsttutons that are wllng to loan small holder farmers. The fact that avalablty of nformal lendng opportuntes has lmted the chance of farmer's adopton of nput credt through contract farmng, stll these nformal lendng nsttutons needs to be encouraged by allowng them conducve busness operaton envronment n servng those farmers who are not wllng to be ted up wth contractual agreements that sometmes poses hgh transacton costs. Thrdly, we stll emphasze that tobacco contractng model n the country should be "buyer+ ntermedary + small holder". Ths s because by farmers producng and sell through ntermedary (cooperatve), both vertcal coordnaton n contract arrangement and functonng of tobacco chan shall be mproved. We have learned from the lterature that, farmer cooperatve s an effcent governance structure and therefore apart from lnkng producers and buyers, the cooperatve may assst to overcome the coordnaton problems n the producton system. Besdes, farmers are beleved (on ther own) to have weak negotaton powers n terms of prce, qualty and even quantty, thus, when are organzed through cooperatves they can strengthen ther arguments and clams n a more comprehensve and organzed manner durng negotatons. Fnally, we see the demand for ndependent farmng as food for thought for relevant authortes and stakeholders n the tobacco contract farmng who stll nsst group lendng. Group collectve responsblty have never worked well other than creatng problem of sde sellng and unrecovered loans whch have threatens the sustanablty of cooperatve socetes. We strengthen that the tobacco contract farmng confguraton should allow flexblty for those farmers who would wsh to jon the contract farmng arrangement and those who would lke to be ndependent farmers. References: Asfaw, A., and Admasse, A (2004) "The Role of Educaton on the Adopton of Chemcal Fertlzer under dfferent Socoeconomc Envronments n Ethopa". Agrcultural Economcs 30:

18 Badu-Forson, J (1999) " Factors nfluencng adopton of land- enhancng technology n the Sahel: lessons from a case study n Nger". Agrcultural Economcs 20, Barham B.L, Foltz, J.D, Jackson- Smth, D., and Moon, S (2004) "The dynamcs of agrcultural botechnology adopton: Lessons from rbst Use n Wsconsn, Am.J.Agrc.Econ. 86:1 Baumann, P. (2000) Equty and Effcency n Contract Farmng Schemes: Th e Experence of Agrcultural Tree Crops'. Workng Paper No London: Oversees Development Insttute. Beal, G.M., and Bohlen, J.M (1957). The Dffuson Process. Workng Paper, Agrcultural Expermentaton Staton, Iowa State College, Ames, IA Brquette, C (1999) Better practces n Agrcultural lendng, FAO Publcatons Caswell, M., K. Fugle., C. Ingram., S. Jans and C. Kascak.(2001). " Adopton of Agrcultural producton practces: Lessons learned from the US. Department of Agrculture area studes project". Washngton DC. US Department of Agrculture. Resource Economcs Dvson, Economc Research servce, Agrculture Economc Report No.792. Cook, M.L.,and Chaddad, F.R (2000) " Agro ndustralzaton of Global Agrfood Economy: brdgng development economcs and agrbusness research". Agrcultural Economcs 23 (3), Da Slva, C.A.B (2005). "The Growng Role of Contract Farmng n Agr- Food Systems Development: Drvers, Theory and Practce". Agrcultural Management, Marketng and Fnance Servces. FAO- Rome. Dagne, A. Zeller, M. and Sharma, M (2000). Emprcal Measurements of Households' Access to Credt and Credt Constrants n Developng Countres: Methodologcal Issues and Evdence: Internatonal Food Polcy Research Insttute. Washngton, D.C. U.S.A. Feder, G., Just, R., Zlberman, D (1985) " Adopton of agrcultural nnovatons n developng countres: a survey." Economc Development and Cultural Change 33, Fsher, E., and Qam, M (2012) "Lnkng Small holders to Markets: Determnants and Impacts of Farmer Collectve Acton n Kenya". World Development Glover, D., and K. Kusterer (1990) " Small farmers, Bg busness: Contract Farmng and Rural Development"". 1 st Edn., Macmllan, New York. Greene, W.H Econometrc Analyss, second ed. Prentnce- Hall, Englewood Clffs. Gujarat, D,N Basc Econometrcs. 2 nd edton. New York: McGraw-Hll Guo, H., and Jolly, R.W (2008) "Contractual Arrangements and Enforcement n Transton Agrculture: Theory and Evdence from Chna". Food Polcy 33, pp Guo, H., Jolly, R.W., and Zhu, J (2007) " Contract Farmng n Chna: Perspectves of Farm Households and Agrbusness Frms". Comparatve Economc Studes 49 (2), Harper, J. K., M. E. Rster, J. W. Mjelde, B. M. Drees, and M. O. Way (1990). "Factors nfluencng the adopton of nsect management technology." 18

19 Amercan Journal of Agrcultural Economcs. 72(4) : Hll, R.C., Grffths, W.E., and Lm, G.C., Prncples of Econometrcs, 3 rd ed. Wley, New York. Hu, B., L, X., and Gan, C (2011) " The welfare mpact of mcrocredt on rural households n Chna" The Journal of Soco- Economcs 40 : Huffman, W.E Farm and off- farm work decsons: The role of human captal. Rev. of Econ. Stats. 62:14-23 Kasenge, V. (1998) "Soco-economc factors nfluencng the level of Sol Management Practces on Fragle Land". In Proceedngs of the 16th Conference of Sol Scence Socety of East Afrca (Eds.: Shayo-Ngow, A.J., G. Ley and F.B.R Rwehumbza), 13th-19th, December 1998, Tanga, Tanzana pp , Key, N. and D. Runsten (1999). " Contract Farmng and Smallholders and Rural Development n Latn Amerca: The Organzaton of Agro processng Frms and the Scale of Out grower Producton." World Development, Volume 27, Issue 2, February, pp Langyntuo A.S., and Mulugetta, M (2005) " Modellng agrcultural technology adopton usng the software STATA. Internatonal maze and wheat mprovement centre (CIMMYT) Tranng manual no. 1/2005 (part II)" Mount Pleasant Harare, Zmbabwe. Lttle, P.D., and Watts, M.J (1994) " Lvng under contract: Contract farmng and Agraran Transformaton n Sub- Saharan Afrca". The Unversty of Wsconsn Press, Wsconsn. Marano, M.J., Vllano, R., and Flemng, E (2012) "Factors nfluencng farmers' adopton of modern rce technologes and good management practces n the Phlppnes". Agrcultural Systems 110: Mgnouna, D.B, Manyong, V.M, Mutabaz, K.D.S., and Senkondo, E.M (2011) "Determnants of adoptng mazapyr-resstant maze for Strga Control n Western Kenya: A double- hurdle approach". Journal of development and agrcultural economcs, Vol. 3(11). Avalable onlne at Mugsa-Mutetkka, M., Opo, A.F., Ugen, M.A., Tukamuhabwa P., Kaywa, B.S., Nrngye, C. and Kkoba, E (2000) "Logstc Regresson Analyss of Adopton of New Bean Varetes n Uganda." A research report Mukherjee, C., Whte, H., and Wuyts, M Econometrcs and Data Analyss for Developng Countres. Routledge, London, New York. Mutandwa, E., Gadzray, C.T., and Zngwe, F (2007) Factors Affectng Adopton on Long Staple Cotton Varety among Smallholder Farmers n Zmbabwe. Eastern Afr.Soc.Sc.Res.Rev., 23 (1): 1-14 Mzough, N (2011) Farmers adopton of ntegrated crop protecton and organc farmng: Do moral and socal concerns matter? Ecologcal Economcs 70: Okten, C., and Osl, U.O (2004). "Socal Networks and Credt Access n Indonesa". World Development Vol.32, No. 7, PP