The impact of the Europeun Union grant on access to credit and production in smallholder sugarcane agriculture in Siphofaneni eSwatini

Abstract

Credit is important because it enables farmers to increase agricultural production. Access to credit from commercial banks for smallholder farmers enhances productivity and promotes farmer development. It plays an important role in alleviating poverty and creating an economically stable life. However, access to credit for rural smallholder sugarcane farmers in Eswatini is limited. The purpose of this study was to assess the impact of a European Union (EU) grant on access to credit from commercial banks and farming activities for smallholder sugarcane farmers in Eswatini. The study determined whether smallholder sugarcane farmers had access to credit from commercial banks and other formal financial institutions. It also determined whether being a participant in an EU grant funding led to increased access to credit and to higher production for smallholder sugarcane farmers. The study determined the extent to which an EU grant funding contributed to eliminating constraints faced by smallholder sugarcane farmers. Data was analysed using Statistical Package for the Social Sciences (SPSS) software. Descriptive and econometric analyses were performed to identify the factors that influence access to credit and farming activities for smallholder sugarcane farmers. The Propensity Score Matching (PSM) was applied to identify the impact of the EU grant funding on access to credit from commercial banks and farm activities. The matching compared beneficiaries to non-beneficiaries of the EU grant funding in terms of the independent variables hypothesised to have an effect on access to credit. After the application of PSM, the average treatment effect on the treated was used to measure the appropriateness of the intervention of the EU grant funding on smallholder sugarcane farmers in Eswatini. Descriptive statistics show that 55% of the smallholder sugarcane farmers are male and their average age is 58 years. It also shows that about 37% of the smallholder farmers are illiterate, with only 32% attending primary school and only 31% attending high school. Lastly, it shows that, the major source of income for smallholder farmers is the sugarcane farming enterprise and that about 37.5 % of smallholder sugarcane farmers in Siphofaneni have been beneficiaries of EU grant funding. For the logistic regression for access to credit, five of the variables used in the study were statistically significant. These variables included education, land size; grant funding, off-farm income and extension services. The variables had an effect on farmers’ access to credit from commercial banks. The other variables were not significant at any level; consequently, they did not have an effect on farmers’ access to credit. The logistic regression for farming activities shows that only four variables had an effect on farmers’ production. These variables included farmers’ experience, grant funding, off-farm income of the farmer and extension services. The results suggest that EU grant funding increases the chances that smallholder farmers can access credit from commercial banks. Therefore, farmers that are beneficiaries of EU grant funding are presumed to have more access to credit than their counterparts who are not beneficiaries. The average treatment effect on the treated also showed that beneficiaries of EU grant funding had a higher chance of access to credit than non-beneficiaries of EU grant funding. Overall, the EU grant has contributed to eliminating credit constraints faced by smallholder farmers. However, it has not affected full elimination of production constraints faced by smallholder sugarcane farmers in Eswatini. About 90% of the farmers pointed out that electricity and water were the major constraints they faced. The power rates are high because farmers use more electricity for water pumping directed at their fields. Further, water is another constraint because drought has hit Eswatini and therefore water from the dam in the study area has been rationed to ensure availability in the future. This has a negative effect on farmers’ production, as lack of water for sugarcane production reduces the sucrose level, resulting in lower returns for the farmers.