Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 2, No.2, 2012 1 Technical Efficiency in Agriculture in Ghana-Analyses of Determining Factors Justice G. Djokoto Department of Agribusiness, Central Business School, Central University College, Accra Ghana. *Email:dgameli2002@gmail.com. Tel:+233285039399 Abstract The paper sought to estimate technical efficiency in Ghana’s agricultural sector and more importantly, investigate the factors that influence the estimated technical efficiencies. Using data from 1976-2007, the results showed a decreasing returns to scale in Ghana’s agriculture. Land is negatively inelastic showing over use of the factor. Technology variables, fertiliser and tractor and combines are positively related to output. Whilst fertiliser is elastic, tractor and combines is inelastic. The level of inefficiency is 21% with decreasing returns to scale. The SFA specification is the appropriate model, indeed, superior to OLS. None of the hypothesised variables to explain technical efficiency were statistically distinguishable from zero. The negative sign for land requires decrease in the use of land relative to other inputs. This calls for increase in the use of other variables. The insignificance of the TE effect variables suggest that these variables may be inappropriate in explaining TE in the case of Ghana. Other variables may have to be explored. Keywords: technical efficiency, agriculture, Ghana, determinants 1. Introduction 1.1 Background The traditional roles of agriculture include provision of food security, supply of raw materials for industry, creation of employment and generation of foreign exchange earnings. Additionally, agriculture is recognised for social stabilisation, buffer during economic shocks, support to environmental sustainability, and cultural values associated with farming. Furthermore, agriculture is acknowledged to impact on poverty reduction more than other sectors (MOFA, 2007). In fact, Bogetic et al (2007) and Coulombe & Wodon (2007) provide evidence that the poverty rate in Ghana fell from 51.7% in 1991-1992 to 39.5% in 1998-1999 and 28.5% in 2005-2006. In the light of the foregoing agriculture remains strong in Ghana. The sector still employs 54% of Ghana’s population (UNCTAD, 2011) and contributes 10% to non-traditional exports despite a decline in the sector’s contribution to Ghana’s GDP from 40% in 2000 to 30% in 2010 (MOFA, 2011). Agricultural production which is largely rainfed (only 0.2% of irrigated land) provides food for the inhabitants. The 2010/2011 food balance sheet revealed that the country recordered food surpluses; 0.075m metric tonnes (MT) of legumes, 0.69m MT of cereals and 8.29m MT starchy staples (MOFA, 2011). The main legume crops grown are groundnuts, cowpea and soyabean. Cassava, yam, plantain and cocoyam constitute main starchy staple crops produced in Ghana. In respect of cereal production, the main crops include maize, sorghum, rice and millet. Aside of food, Ghana produces industrial crops; mainly cocoa, coffee, rubber, sheanut and oil palm for export. The livestock sub-sector is dominated by poultry on both small and medium scale. The rest are the production of cattle, pigs, sheep and goats. The fisheries sub-sector, the smallest in terms of GDP contribution is largely marine. There is however, a growing attraction of fish culture especially, tilapia within Ghana’s main river, the Volta. The focus of Ghana’s Agricultural Development Agenda emphasises the sustainable utilisation of all resources and commercialisation of activities in the sector with market-driven growth in mind and targets some commodities for food security and income diversification, especially of resource poor farmers. Additionally, greater engagement of the private sector and collaboration with other partners are court to facilitate implementation of agricultural policies (MOFA, 2007). Moreover, enhancement of productivity of the commodity value chain, through the application of science and technology, with environmental sustainability is emphasised. The focus on enhancement of productivity brings to the fore the issue of productive efficiency. Technical efficiency (TE) measures the difference between the ideal production possibility curve (PPC) (in this case for a country) and the actual level of performance (of the country) relative to the PPC. This Farrell (1957) described as output-oriented efficiency. From a cross-sectional perspective, the concept involves assessing each farm’s production performance compared to a best-practice input-output relationship or frontier. The best-practices production frontier is established by the practices of the