Effects of credit subsidy on smallholders maize productivity and farm income in Chókwè District, Mozambique

Abstract

Credit constraints hinder development of agriculture in developing countries, yet access is mainly associated with increased farm productivity and crop incomes. For over a decade, Mozambican smallholders have accessed a decoupled credit subsidy under the seven million program for agricultural development. However, little is known about the influence of the program on crop productivity and farm incomes in rural areas. This study therefore, examined whether there are productivity and income benefits for program beneficiaries in Chókwè district using maize crop as an example. To accomplish these objectives, a random sample of 159 farmers was interviewed using a structured questionnaire but only 107 farmers with complete data on credit subsidy and other socio-economic characteristics, farm outputs and incomes were used in the analysis. The econometric results were obtained using Endogenous Switching Regression (ESR) technique and its robustness compared with results from the Propensity Score matching model. The Endogenous Switching Regression results indicated that credit had significant and positive effect on maize productivity. Further, the age of the farmer, number of contacts with extension services providers, distance to input markets and source of income influenced decision to participate in the subsidy market. The same results were found using Propensity Score matching approach. An Analysis of Variance showed higher incomes for those participating in the program. These results suggest that a decoupled credit subsidy could influence both crop productivity and farmers’ incomes when infrastructural and off-farm income differences are corrected. Consequently, the study recommends increased coverage of the subsidy program, extension advocacy and opening up of rural areas through quality roads to ensure agricultural productivity and increased farm incomes.