Analysis of economic efficiency in smallholder maize production in northwestern Kenya

Abstract

This study investigated economic efficiency in smallholder maize-based farming system of Northwestern Kenya, in the context of integrated soil fertility management (ISFM) options developed by Kenya Agricultural Research Institute. The study used farmhousehold data to: i) evaluate differences in technical, allocative and economic efficiency levels, and ii) establish factors determining technical, allocative and economic efficiency in maize production. Stochastic production and cost frontier models within production theoretical framework were applied in analyzing cross-sectional data from 373 small-scale maize farmers stratified by agro-ecological zones and soil fertility management choices in Trans Nzoia and Lugari Districts. The results indicate that on average, maize farmers were only 49 percent economically efficient. This was largely due to low technical efficiency, estimated at 64 percent given that most farmers had high allocative efficiency, averaging 75 percent. This finding is consistent with the view that resource-poor farmers are highly efficient in allocating the limited financial resources at their disposal. The results demonstrate that efficient maize production has enormous potential to improve general welfare gains from technological interventions as well as enhance farmers' incentives to invest in soil fertility management. Moreover, farmers who used integrated soil fertility management strategies in maize production were found to operate closer to their efficient frontiers than those who applied inorganic fertilizers alone. Extrapolation of efficiency gains to the study region indicate that enhanced technical efficiency had potential to add about 183,000 tonnes of maize grains while cost savings from better allocative efficiency was Ksh 768 million. This study demonstrated that education, off-farm income, family size, extension contacts, credit and market access and soil fertility management were significant factors influencing economic efficiency in smallholder maize production in Northwestern Kenya. Therefore, policy interventions in form of price stabilization for both maize grains and inorganic fertilizers, increased extension coverage, improvement of rural roads and provision of agricultural credit to relax liquidity constraint among maize farmers are recommended. It is anticipated that the determination of these efficiency measures will be important in targeting and scaling-up the interventions such as transfer of ISFM and other modern technologies using group based approaches to improve technical efficiency and productivity. Collaborative efforts by formal and informal extension service providers supported by strong research-extension-farmer linkages are recommended. In addition, the results will be useful in guiding the development of human capital and access to markets and credit services in rural areas to improve allocative efficiency among smallholders for sustainable food production and resource management in Kenya. Collective access to credit services, input and output markets through farmer organizations are suggested as strategies to meet collateral requirements, enhance benefits of economies of scale and increase returns for farmers in Kenya.