Price and non-price determinants of farm household demand for purchased inputs: evidence from Northern Ghana

Abstract

The study examined the factors that influence the use of purchased inputs (fertilizer, hired labour, seed and ploughing services) by smallholders in Northern Ghana. The seemingly unrelated regression technique was used to estimate a system of cost share equations of the factor inputs. The elasticities of substitution and factor demand have been estimated. The estimated results suggested that higher amount of remittance received and the attainment of basic education significantly led to higher fertilizer expenditure, suggesting that credit and basic education programmes were important for increasing expenditure on production enhancing inputs like fertilizer. The own-price elasticities of demand for the inputs were significant and had the expected negative signs. The demand for seed and ploughing services were quite price inelastic, while the demand for fertilizer and hired labour were price elastic. The estimated own-price elasticities of demand for fertilizer and hired labour indicated substantial high degrees of price responsiveness of farmers for them. The estimated cross-price elasticities suggested that smallholders would substitute relatively more hired labour for fertilizer, if the relative price of fertilizer to hired labour is increased.