Agricultural Mechanization in Ghana: Is Specialization in Agricultural Mechanization a Viable Business Model?

24 Pages Posted: 7 Apr 2013

See all articles by Nazaire Houssou

Nazaire Houssou

International Food Policy Research Institute (IFPRI)

Xinshen Diao

International Food Policy Research Institute (IFPRI)

Frances Cossar

A member of the CGIAR Consortium - International Food Policy Research Institute (IFPRI)

Shashidhara Kolavalli

International Food Policy Research Institute (IFPRI)

Kipo Jimah

A member of the CGIAR Consortium - International Food Policy Research Institute (IFPRI)

Patrick Aboagye

Ministry of Food and Agriculture, Ghana

Date Written: March 1, 2013

Abstract

Since 2007, the government of Ghana has been providing subsidized agricultural machines to private enterprises established as Agricultural Mechanization Services Enterprise Centers (AMSEC) to scale up tractor-hire services to smallholder farmers. Although farmer’s demand for mechanization has increased in recent years, most of this demand concentrates on land preparation (plowing) service. Using the firm investment model and recent data, this paper quantitatively assesses whether AMSEC as a private enterprise is a viable business model attractive to private investors. Even though the intention of the government is to promote private sector-led mechanization, findings suggest that the AMSEC model is unlikely to be a profitable business model attractive to private investors even with the current level of subsidy. The low tractor utilization rate as a result of low operational scale is the most important constraint to the intertemporal profitability of tractor-hire services. Our findings further support the argument of Pingali, Bigot, and Binswanger (1987), who indicated that mechanization service centers supported through government’s heavy subsidy are not a policy option anywhere in the world, even in the current situation in Ghana. Although the tractor rental service market is a proper way of mechanizing agriculture in a smallholder-dominated agricultural economy such as Ghana, this paper concludes that the development of such a market depends crucially on a number of factors, including increased tractor use through migration across the two very different rainfall zones (north and south), increased tractor use through multiple tasks, and use of low-cost tractors. The government can play an important role in facilitating the development of a tractor service market; however, the successful development of such a market depends on the incentive and innovation of the private sector, including farmers who want to own tractors as part of their business portfolio, traders who know how to bring in affordable tractors and expand the market, and manufacturers in exporting countries who want to seek a long-term potential market opportunity in Ghana and in other west African countries.

Keywords: Agricultural mechanization, Agricultural transformation, Government policy, Investment, Market development, Mechanization, Private ownership, Private sector, Subsidies, Tractor hire, Africa, Africa South of Sahara, Ghana, West Africa

Suggested Citation

Houssou, Nazaire and Diao, Xinshen and Cossar, Frances and Kolavalli, Shashidhara and Jimah, Kipo and Aboagye, Patrick, Agricultural Mechanization in Ghana: Is Specialization in Agricultural Mechanization a Viable Business Model? (March 1, 2013). IFPRI Discussion Paper 01255. Available at SSRN: https://ssrn.com/abstract=2245672 or http://dx.doi.org/10.2139/ssrn.2245672

Nazaire Houssou (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

HOME PAGE: http://www.ifpri.org

Xinshen Diao

International Food Policy Research Institute (IFPRI) ( email )

2033 K Street, NW
Washington, DC 20006
United States
202-862-8113 (Phone)
202-467-4439 (Fax)

Frances Cossar

A member of the CGIAR Consortium - International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Shashidhara Kolavalli

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Kipo Jimah

A member of the CGIAR Consortium - International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Patrick Aboagye

Ministry of Food and Agriculture, Ghana ( email )

P. O. Box M37
Accra
Ghana

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