A Framework for Determining the Impact of Value Chain Participation on Smallholder Farm Efficiency

Abstract

We analyze the efficiency of wheat farmers toward the ever-increasing demand for wheat in Tanzania. Translog production and cost functions were utilized in the stochastic frontier analysis to examine technical, allocative, and economic efficiencies (TE, AE, and EE) of wheat farmers in Northern Tanzania. Propensity score matching through caliper radius and nearest neighbor methods were utilized to analyze the impact of value chain participation on smallholder farm efficiency levels. Analysis revealed that the average TE, AE, and EE scores for farmers’ value chain participation were 79%, 80%, and 64%, respectively, in the study area, implying that wheat farmers could still improve level of TE, AE, and EE by 21%, 20%, and 36%, respectively. Caliper radius matching revealed that the net effects of farmers’ participation in vertical coordination on TE, AE, and EE were 6.8%, 5.7%, and 8.7%, respectively, while the net effects of farmers’ horizontal coordination participation were 6.3%, 9.5%, and 11.6%, respectively. This indicates that farmer’s participation in value chain (vertical and horizontal coordination) would positively impact their level of wheat farm efficiencies. Based on the results, we recommend the expansion of wheat plots and use of modern farming technologies to increase wheat production in Tanzania. To further improve farm unit efficiency, we recommend additional formal education for future farmers, more on-farm extension training, and participation in the value chain through contracts and farmers’ associations.