Impact of Agricultural Credit on Technical Efficiency and Technological Gap Ratio Among Coffee Farmers in Kenya

Extant literature demonstrates that the technical efficiency (TE) of coffee farmers is on a downward trajectory but there are scarce resources to link how agricultural credit is directly instrumental in improving technical efficiency. Therefore, this study was conducted in Kiambu County in Kenya to determine the impact of agricultural credit on technical efficiency and the technological gap ratio among coffee farmers. The data for the study from 2017 to 2019 was obtained from Commodity Fund and farmers’ cooperative societies. The paper adopted a meta-frontier framework to estimate the technology gap ratios (TGR) for participating (PF) and non-participating (NPF) coffee farmers in the credit program. The empirical results disclose that PF and NPF adopted heterogeneous production technologies given their dissimilar access to credit that is essential for the acquisition of inputs. The TGR for PF and NPF was 0.969 and 0.747 respectively which indicate that PF operated on a loftier frontier in comparison to NPF. Thus, PF were technically efficient as compared to NPF given their very small gap between regional and meta-frontier efficiencies (MFE). The Decision-Making Unit inefficiency estimates indicate that the credit program interventions aimed at efficiency improvement in NPF should be targeted at enhancing farmers’ access to optimal combinations of inputs and advisory services through extension visits. Consequently, this paper recommends policies tailor-made to promote credit access by smallholder farmers to improve TE and TGR.