Analysis of input demand by smallholder cotton producers in eastern Uganda.

Abstract

Cotton farming in Uganda is mostly undertaken by smallholder farmers who face invariably several problems such as pests, price volatility, weather uncertainty and transaction costs with limited use of purchased inputs such as cotton seed and pesticides. This study focused on transaction costs that cotton farmers incur. The study therefore aimed at determining transaction costs that cotton farmers incur in production and other factors that effect farmers' demand for seed and pesticides, and estimating the proportion of total variable costs of cotton production accounted for by transaction costs. A survey of
cotton farmers was conducted in Kumi and Pallisa districts, well known for cotton production in eastern Uganda The econometric models used in this study stem from the theory of log linear or constant elasticity form of single demand equations. Linear regression analysis of data was executed using SPSS in order to facilitate the estimation of the demand functions for cotton seed and pesticides. Results indicate that the percentage share of transaction costs of total variable costs of production was remarkable (34 %). A break down of total transaction costs revealed that lost revenue formed the greatest percentage (85%),
followed by imputed transport costs (11%) and opportunity cost of travel and waiting time (4%), respectively. However, the statistically significant determinants of farmers' demand for cotton seed and pesticides were farmers' income and size of the cotton field. To enable the smallholder farmers who usually plant small areas to cotton, and the low-income farmers who are the majority in the rural areas, policy amendments inclined towards reduction of the transaction costs can improve the profitability of the cotton enterprise by
increasing the demand for inputs. Stakeholders in the cotton sub sector responsible for seed distribution should also delivery the seed in time.

Keywords: cotton, input demand, pesticide, transaction costs

Eastern Africa Journal of Rural Development Vol. 21 (1) 2005: pp. 73-83