Economic Analysis of Agricultural Credit on Production Efficiency of Borrower Farms

Credit is one of the most crucial but scarce inputs used in agriculture. Farm credit is an important instrument, which has been used to increase agricultural productivity. The main focus of this research is to examine the role of agricultural credits, production and efficiency of farms in Erode District of Tamil Nadu. Kavunthapadi and Modakurichi block of Erode district was selected. A complete enumeration of farm households which borrowed institutional crop loan in each of the sample villages was made. The survey was conducted among 60 borrowers and 45 non-borrowers farm households. In the present study, the efficiency of farms among borrower and non-borrower sample households was determined by the Stochastic Frontier production function of the Cobb- Douglas type had been used. And Tobit analysis was also done to know the effect of credit on farm efficiency. The efficiency scores obtained from first stage Stochastic Frontier Approach for borrower and non-borrower farms were used as dependent variable and a dummy variable to represent credit (X5i) were used as one of the independent variables in addition to other socio economic independent variables. Results of the model revealed that the number of borrower farms with a technical efficiency of more than 90 per cent were more (57 per cent of the total borrower farms) than that of non- borrower farms (33.3 per cent) which implies that the more percentage of farmers availed credit and adopted technology had higher technical efficiency level (90 per cent). The results also indicated that technical efficiency ranged from 0.41 to 0.99 for non borrowers and from 0.62 to 0.98 for borrowers. The results of Tobit regression analysis indicated that net operational area, farm experience, access to farm credit, had positive and significant relationship with the technical efficiency of the farmer.