Abstract:

This study investigates the effects of factor and commodity markets on the development of
the banana sub-sector in central and southwestern Uganda. The study analyses smallholder
household response to production constraints (crop pests and diseases, soil constraints) and
development of product markets and off-farm employment opportunities. The study was
carried out in central region, Masaka and southwest, which have divergent production
constraints and opportunities. Various analytical tools were employed in this study. Cost
benefit analysis was used to assess the competitiveness of banana production versus other
crop enterprises. The stochastic production frontier was used to analyze the technical and
productive efficiency of banana farmers. Production functions were estimated for the
important crops to analyze the allocative efficiency of farmers in each study region. Finally,
labour supply and demand functions were estimated to determine the factors that influence
labour allocation decisions and to assess the farmers’ response to changes in economic
conditions. A multinomial logit model was fitted to identify factors that influence farmers'
labour supply decisions between farm and off-farm work.
Results for the cost benefit analysis show that banana is the most profitable of all the
crops grown, in terms of gross margin. However, imperfections in labour and food markets
cause farmers in the central region to allocate more land and labour to the less profitable
annual crops (sweet potatoes, maize and cassava) but are more satisfying in terms of
household food requirements. High food prices and limitations in access to the off-farm
labour market induce farmers to rely on own farm production for their household food needs.
Results from the technical efficiency analysis show that banana farmers in Uganda are
technically inefficient, and output can be increased by 30 in the southwest and 58% in the
central region. Improved roads, formal education and access to credit are some of the factors
that improve technical efficiency. Agricultural extension visits significantly increases banana
productivity in the southwest. Results confinn that pest (banana weevil) and disease
(Sigatoka) infestation contribute to the low banana production in the central region.
Farm size is positively related to farm productivity. However, production is more
efficient on smaller plots (decreasing returns to scale). The low productivity on small farms
puts to question the sustainability of smallholder agriculture, given the imperfections in
labour and food markets and limited access to purchased inputs. Analysis of the marginal
products of labour shows that farmers are allocatively inefficient and production and
consumption decisions are nonseparablc. Findings from labour supply analysis show that
farmers respond positively to changes in shadow wage rates and negatively to changes in
shadow income. This implies that the farmers are responsive to economic incentives. Access
to off-farm opportunities takes away the most productive labour from farm production. Thus
improved road access and high wage rates are associated with lower farm labour productivity
and lower labour supply. Education and road access have a positive effect on time allocated
to off-farm activities while farm size is negatively related to work hours in off-farm activities.
The study reveals that policies that promote income diversification into off-farm activities can
contribute to sustained development in the rural sector. In particular, policies that reduce
transaction costs are likely to improve productivity and efficiency in both the off-farm sector
and farm sector. Investment in road infrastructure, education and financial institutions that
are suited to smallholder production needs could help in alleviating the bottlenecks in the
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Key words: Smallholder poor farmers, market access, bananas, productivity, efficiency,
labour demand, labour supply. Uganda.
labour, food and financial markets, and improve resource allocation between the farm and
nonfarm sectors.