DETERMINANTS OF BORROWING DECISION AND TRANSACTION COSTS OF ARABLE CROP FARMERS IN ABIA STATE

Abstract

The study examined determinants of borrowing decision and transaction costs of arable crop farmers in Abia State. A multi-stage sampling technique was used to select 120 arable crop farmers in the study area. Data were analysed using descriptive statistics (means and percentages) and inferential statistics (gross margin analysis, transaction cost measure and regression analysis). The cost and return analysis show that purchase price was the most important cost variable in the arable crop farming business. On average, an arable crop farmer realized a gross margin of ₦200,674,000. Furthermore, application fee, contracted amount, interest rate charge, paper works, office (legality) costs, collateral costs, amount of loan applied, distance to lending institutions, transportation cost and loan period were the transaction cost characteristics that affects borrowing decision of arable crop farmers in the study area. The result of the regression analysis reveals Pseudo R² of 0.1902, meaning that 19.02% of variations in borrowing decision and transaction costs of arable crop farmers in Abia State was explained by the independent variables included in the model. The constraints of arable crop production in the study area were poor of storage facility ( = 2.52), poor demand of products ( = 3.76), unfavourable government policy ( = 3.43), lack of collateral ( = 3.01), inadequate labor inputs ( = 2.98), lack of credit facilities ( = 3.10), delayed loan acquisition period ( = 3.11) and complex documentation processes ( = 2.83). It can be concluded that arable crop farming business in the study area was profitable and generated a good revenue. Based on the findings it was recommended that extension services should be made available to farmers in the study area in order to increase the awareness of various credit sources and arouse the interest of farmers in the area in the use of credit. Credit institutions should be located near the farmers to reduce transaction costs and policies should also be targeted to reduce interest rate for farmers.