Farmers preferences for contracts on bioenergy crop (jatropha curcas) production in Northern Ghana using discrete choice experiment

Farming bioenergy crops has become increasingly important in the global agriculture. Ghana has currently joined countries in the forefront of biofuel investments. The government policy of having 10% biofuel share of Ghana’s total fuel content by 2015 has partly been a driving factor for the growing interest in biofuels. In Ghana, prominent feedstocks identified for biofuel production include jatropha and cassava, although the former is more predominant. Jatropha is a perennial bioenergy crop with a productive lifespan around 50 years. Jatropha is mainly grown in the northern regions of Ghana on around 5700 hectares. The northern regions are semi-arid, with limited forest density, and low-to-medium climatic production potential making the region suitable for Jatropha cultivation. In Africa, interest in Jatropha Curcas as the most viable candidate for producing non-polluting biodiesel has arisen as a consequence of its multiple properties such as its ability to grow and rehabilitate degraded lands and the generation of biodiesel from its oilseeds. If well exploited, Jatropha can provide opportunities for good returns and rural development in developing countries. However, farmers wishing to grow Jatropha need to significantly invest in establishment and equipment and make a long-term commitment of land in order to recover the returns on their investment. Due to the lack of adequate established markets for bioenergy crops, Jatropha production exposes farmers to price and yield risks that might differ from those for traditional crops for which well-established markets exist. Contract farming represents an incitement for farmers to grow bioenergy crops. Most studies have focused on the technical and economic feasibility of bioenergy production from Jatropha Curcas. Very few studies have aimed to identify farmers’ preferences for contracts to produce a bioenergy crop. The objective of this study is then to employ a Discrete Choice Experiment (DCE) in order to empirically analyse farmers’ preferences for a contract to produce Jatropha as a bioenergy crop in two districts (West Mamprusi and Yendi) of Northern Ghana. Preference heterogeneity is investigated as well as its sources. The study also provides the estimates of incremental values for contract attributes. The study also incorporates in the status-quo alternatives risk information. These risk information are data on current crop mean returns and associated variance, risk perceptions, and risk preferences. The attributes considered in the analysis are price, contract form (written vs non-written), presence of renegotiation option and support from the buyer in terms of: “Seeds, technical trainings, fertilizers and pesticides”, “Seeds, fertilizers and pesticides only”, “Seeds and technical trainings only” and “Seeds only”. The study is based on the mean-variance utility framework. In order to account for heterogeneity of preferences of farmers for contract attributes, as well as account for scale difference, a Random Parameter Logit (RPL) model is specified. The econometric model has 4 variations. Firstly, a model with homogeneous status quo is estimated. Secondly, the study introduces preference heterogeneity through the interaction of specific individual characteristics with contract attributes. Thirdly, a model incorporating respondent-specific information on net revenue, variance and self-assessment risk preference information is specified. Lastly, a model incorporating respondent-specific information on net revenue, variance and psychometric risk preference information is specified. The three models with respectively socioeconomic characteristics interaction, self-assessment and psychometric risk preferences were then tested against the base model with homogeneous status quo alternative in order to find out whether there is significant model improvement. Estimations are performed using LIMDEP/NLOGIT 4.0 software. The results show that higher contract prices, the presence of written contract and support from the buyer increased the probability of a producer accepting Jatropha contract. The results also show that the standard deviation for all attributes is significant meaning that there is significant preference heterogeneity among attributes. Preference heterogeneity was caused by the following farmers’ characteristics: district, gender and Jatropha adoption status. In the West Mamprusi district, farmers tend to choose the alternative with a written contract form and support from the buyer in terms of “seeds, technical training, fertilisers and pesticides”. However, they are less likely to choose the alternative with a renegotiation option. Farmers who currently grow Jatropha are less likely to prefer support from the buyer in terms of “seeds, technical training, fertilisers and pesticides”. Female respondents are less likely to accept a contract to produce Jatropha if the buyer provides support in terms of “seeds and technical training only”. The likelihood test shows an improvement of the base model when interacting attributes with socioeconomic characteristics. Model improvement is also shown when incorporating respondent-specific information on net revenue, variance and risk preference. Furthermore, the results show that an increase in the variance associated with the current crop which is most likely to be substituted with Jatropha leads to an increase in the likelihood of a risk-averse farmer to accept the contract. In addition, an increase in the variance associated with the current crop which is most likely to be substituted with Jatropha decreases the likelihood of a risk-seeking farmer to accept a contract to produce Jatropha. Using the Delta method in order to compute the mean and confidence intervals of individual attribute incremental values, the study shows that each contract attribute increment increases the overall value of the contract. For instance, taking the base model results as representative, written contract adds GHC 2 per kilogramme to the value of a Jatropha contract, whereas “Seeds, technical training, fertilisers and pesticides” adds GHC 2.27 per kilogramme. “Seeds, fertilisers and pesticides” adds GHC 1.25 per kilogramme, whereas the presence of “seeds and technical training” adds GHC 1.69. The presence of a renegotiation option increases the contract value by GHC 0.16 per kilogramme. This study concludes that farmers’ preferences matter when designing contractual arrangements to produce bioenergy crops in Northern Ghana. The study recommends Jatropha contract design based on written contract, support in the form of “seed, technical training fertilisers and pesticides”. In addition, an increase in Jatropha seeds price as a way to sustain the growing industry is also recommended.