See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/320981685

The Nexus of Agricultural Credit, Farm Size and Technical Efficiency in Sindh,
Pakistan: A Frontier Approach

Article  in  Journal of the Saudi Society of Agricultural Sciences · November 2017

DOI: 10.1016/j.jssas.2017.11.001

CITATIONS READS

53 619

4 authors:

Abbas Ali Chandio Jiang Yuansheng

Sichuan Agricultural University Sichuan Agriculture University
128 PUBLICATIONS   1,849 CITATIONS    85 PUBLICATIONS   868 CITATIONS   

SEE PROFILE SEE PROFILE

Abrham Tezera Gessesse Rahman Dunya

Sichuan Agricultural University Sichuan Agricultural University
19 PUBLICATIONS   79 CITATIONS    5 PUBLICATIONS   87 CITATIONS   

SEE PROFILE SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Energy Poverty and Economic Deveopment View project

Re-imaging the Higher Education System Cloud-Based Learning in Pakistan-COVOD19 View project

All content following this page was uploaded by Abbas Ali Chandio on 17 November 2017.

The user has requested enhancement of the downloaded file.

 Journal of the Saudi Society of Agricultural Sciences xxx (2017) xxx–xxx

Contents lists available at ScienceDirect

Journal of the Saudi Society of Agricultural Sciences

journal homepage: www.sciencedirect.com

The Nexus of Agricultural Credit, Farm Size and Technical Efficiency in

Sindh, Pakistan: A Stochastic Production Frontier Approach
Abbas Ali Chandio a,⇑, Yuansheng Jiang a, Abrham Tezera Gessesse b, Rahman Dunya b
a
College of Economics, Sichuan Agricultural University Chengdu, China
b
College of Management, Sichuan Agricultural University Chengdu, China

a r t i c l e i n f o a b s t r a c t

Article history: This study examined the impact of agricultural credit and farm size on the technical efficiency of rice pro-
Received 9 August 2017 ductivity in Sindh, Pakistan. A cross-sectional random sampling technique was used to collect data from
Revised 27 October 2017 180 rice growers through a face to face interview. The stochastic production frontier technique was
Accepted 6 November 2017
employed to analyse the survey data. The results of Maximum Likelihood Estimation (MLE) showed that
Available online xxxx
credit, farm size, fertilizer, and labor significantly influenced the rice productivity in Sindh, Pakistan.
Additionally, larger and significant scale of elasticity was found on credit while larger and significant
Keywords:
marginal effect was found on farm size. Further, the mean technical efficiency was 0.97, which implies
Agricultural credit
Rice productivity
that 97 percent of rice farmers are technically efficient. Therefore, agricultural credit and farm size are
Technical efficiency the dominant factors in the improvement of rice production as well as the technical efficiency of small-
SFA holder farmers in Sindh, Pakistan.
Pakistan Ó 2017 The Authors. Production and hosting by Elsevier B.V. on behalf of King Saud University. This is an
open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

1. Introduction Arab Emirates (UAE) respectively. This crop contributes about

Agriculture sector has an important role in the economy of
Pakistan and it is the essential source of food, employment and
income. This sector contributes around 20% to the GDP, employs
nearly 42.3% of country’s labor force and actively contributes in
the growth of other sectors of the economy. Presently, Pakistan is
the sixth populous country in the world with an estimated popula-
tion of 195.4 million. Out of the total population, around 77.93
million are living in urban areas whereas 117.48 million in rural
areas in 2016. Rural population is directly or indirectly connected
to agriculture for subsistence (GOP, 2016). For economic develop-
ment, a sustainable agriculture is required to change the living
standards of the people and reducing the ratio of poverty in rural
areas of Pakistan. Rice is cash crop and it is an important second
staple food after wheat of the people of Pakistan. It is also high
valued cash and major export items. Pakistan, mostly export high
quality of rice such as Saudi Arabia, Iran, Afghanistan and United
⇑ Corresponding author.
E-mail address: 3081336062@qq.com (A.A. Chandio).
Peer review under responsibility of King Saud University.
Production and hosting by Elsevier
3.1% to the value added in agriculture and 0.6% to the GDP. To meet
the domestic demand as well as for export, Pakistan produces high
quality of rice. For 2015–16, area sown for rice crop is estimated at
2748 (000 hectares), 4.9% lower than last year’s area sown of 2891
(000 hectares). The estimated rice production remained 6811 (000
tons), indicating a decline of 2.7% over corresponding period of last
year’s record production of 7003 (000 tons). The area of rice crop
decreased due to less economic returns to the rice growers on
account of decline in rice prices both globally and domestically
during last year’s crop (GOP, 2016). In Sindh, the cultivation of rice
crop is around two million in acres of agricultural fertile land and
yield of rice is nearly 45–50 Munds per acre with around 50 per-
cent people of rural labor is attached with the crop of rice associ-
ated employs. At the large, such produces at 35 percent of the
country’s rice for yearly production at approximately 3.51 in mil-
lion tons from which 2.1 million tons from milled rice that pro-
duced from more than 800 major crop rice mills (Rasul et al.,
2012). Sindh province of Pakistan produce better quality of rice.
However, rice crop is cultivated in various districts of Sindh, Pak-
istan i.e. Sukkur, Shikarpur, Larkana, Nawabshsh, Hyderabad and
Badin respectively. The most important and major varieties of
the rice crop that have very common in Sindh are Sindhi Basmati,
IRRI-6, IRRI-9, Begghi and D-98 respectively (Rasul et al., 2012).
Almost 11 percent total agricultural area of the country is being
cultivated with the crop of rice and similarly country has another

https://doi.org/10.1016/j.jssas.2017.11.001
1658-077X/Ó 2017 The Authors. Production and hosting by Elsevier B.V. on behalf of King Saud University.
This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

Please cite this article in press as: Chandio, A.A., et al. The Nexus of Agricultural Credit, Farm Size and Technical Efficiency in Sindh, Pakistan: A Stochastic
Production Frontier Approach. Journal of the Saudi Society of Agricultural Sciences (2017), https://doi.org/10.1016/j.jssas.2017.11.001
2 A.A. Chandio et al. / Journal of the Saudi Society of Agricultural Sciences xxx (2017) xxx–xxx
prominent mark due to the primary exporter after cotton and
producer of Basmatti, D-98 and IRRI-6 variety rice. Two province
of Pakistan mainly cultivated the rice crop such as Sindh and
Punjab. About 90 percent production of rice crop produced from
these two provinces on yearly basis. Punjab province of Pakistan
has moderate agricultural climatic zones and with the suitable soil
conditions, which is produced high quality of Basmati rice variety
for the country. The trend of area under rice crop cultivation and
rice crop production from 2000–01 to 2014–15 are shown in
Figs. 1 and 2.
The overall contribution of rice for the growth of agricultural is
dependent on various factors such as increased in usage of farm
inputs, technological change and technical efficiency. Farrell
(1957) distinguishes among technical efficiency and allocative effi-
ciency (or price efficiency) in production through the use of a
‘‘frontier” function. Technical efficiency refers to the ability to pro-
duce a given level of output with a minimum quantity of inputs
under a given technology while allocative efficiency is the ability
to choose optimal inputs levels for given factor prices. Technical
efficiency (TE) is the result of research and development efforts,
whereas TE with which latest agricultural technology is adopted
and used more rationally is affected by the flow of information,
availability of credit, better infrastructure, and farmers’ decision-
making capabilities. Availability and easy accessibility of agricul-
tural credit provides ability to the smallholder farmers to diversify
Fig. 1. Area under rice crop cultivation in Pakistan from 2000–01 to 2014–15.
Fig. 2. Rice production in Pakistan from 2000–01 to 2014–15.
Please cite this article in press as: Chandio, A.A., et al. The Nexus of Agricultural Credit, Farm Size and Technical Efficiency in Sindh, Pakistan: A Stochastic
Production Frontier Approach. Journal of the Saudi Society of Agricultural Sciences (2017), https://doi.org/10.1016/j.jssas.2017.11.001
agriculture sector by undertaking to adopt modern agricultural
technologies or new investment. Credit at the disposal of small-
holder farmers provides opportunity for sufficient usage of farm
inputs. Thus, enhancement of rice productivity could be achieved
by better and easy access to credit. Unfortunately, the agriculture
sector is plagued with challenges like as access to credit. This
impeded smallholder farmers’ access to productive resources and
adoption of modern agricultural technology which could increase
technical efficiency and agricultural development in the long run.
Access to credit for smallholder farmers is constrained by a num-
ber of factors, the most relevant being the lack of collateral (FAO,
2015). Credit is a very important component because low- per acre
yield of rice and income of the smallholder farmers in Pakistan was
limited to credit access.
2. The nexus between agricultural credit and efficiency
Credit is an important factor which increases the production
and income of the farmers (Khalid Bashir and Mehmood, 2010;
Hussain, 2012). In rural areas of Pakistan, the small and marginal-
ized farmers in order to meet the routine expenses readily depend
on two sources of credit such as institutional and non-institutional.
The non-institutional source which contains money lenders, fellow
farmers, commission agents, relatives and friends but the amount
of borrowing is inadequate through these non-institutional
sources. The institutional sources containing Zarai Taraqiati Bank
Limited (ZTBL), Domestic Private Banks (DPB), Punjab Provincial
Cooperative Bank Ltd (PPCBL) and Commercial Banks (Hussain
and Thapa, 2012). The Government has allocated PKR. 600 million
for credit disbursements for the year 2015–2016 which was 20
percent higher than the preceding year (PKR. 500 billion). Out of
the total credit target, PKR. 305.7 billion was allocated to 5 com-
mercial banks, PKR. 102 billion to ZTBL, PKR. 131.8 billion to 15
DPBs, PKR.12.5 billion to PPCBL, PKR. 40.1 billion to 9MFBs and
PKR. 7.9 billion to five Islamic Banks, respectively. During 2015–
2016 (July-March), an amount PKR. 385.5 billion have been dis-
bursed by all banks as against PKR. 326.0 billion during the same
period of previous year, registering an increase of 18.3 percent
(GOP, 2016).
The connection between agricultural credit and technical effi-
ciency have been widely with different econometric estimation
techniques depending on the underlying assumptions. Various
researchers in different regions of the world including (Abate
et al., 2014; Asante et al., 2014; Martey et al., 2015) were applied
the propensity score matching method, other researchers (Amaza
and Maurice, 2005; Coelli and Battese, 1996; Moses and
Adebayo, 2007) have measured impact using the Stochastic Pro-
duction Frontier (SPF). The evidence of these studies suggests that
in the agricultural sector, the crops productivity and efficiency can
be enhanced when financial tools are tailored to the needs of
smallholder farmers. The empirical results of these studies further
argued that smallholder farmers’ decisions to invest and to pro-
duce are closely effected by access to financial instruments and
that if appropriate risk mitigation products are lacking, or if avail-
able financial instruments do not match smallholder farmers’
needs, smallholder farmers may be discouraged from new agricul-
tural technology, purchasing main farm inputs, or making other
decisions that can increase per acre productivity and efficiency.
Consequently, improving access to credit can increase smallholder
farmers’ investment choices and provide them with more effective
tools to manage risks and by extension, increase farm efficiency.
Another study by Masuku et al. (2015) in which the effect of credit
on technical efficiency (TE) among farmers in Swaziland was
assessed. The findings of the study showed that credit had positive
impact on the technical efficiency of tomato, cabbage and beetroot
 A.A. Chandio et al. / Journal of the Saudi Society of Agricultural Sciences xxx (2017) xxx–xxx 3

farmers. Similarly, the results were established recently by Duy
et al. (2012) in a study to examine the impact of formal and infor-
mal credits on rice production efficiency of households in the
Mekong Delta. In order to investigate the role of credit in ensuring
efficiency in the context of West Bengal agriculture, Laha (2013)
conducted a disaggregated analysis for two mutually exclusive
groups: bank customers and non-bank customers. The results
showed that farmers who accessed to formal credit are practicing
cultivation more efficiently (by channeling credit in the utilization
of agricultural inputs) than farmers who less accessed to credit.
Abdallah (2016) estimated the effect of credit on the technical effi-
ciency (TE) of maize farmers in Ghana. The researcher used two-
stage estimation procedure like as probit regression model and
stochastic frontier approach to estimate impact of credit on techni-
cal efficiency of Ghanaian maize farmers. The results revealed that
maize farmers are producing below the frontier with average tech-
nical efficiency of 47 percent. Further, results showed that credit in
particular increased technical efficiency by 3.8 percent. In Pakistan
a very few, the available studies (Buriro et al., 2015; Khalid Bashir
and Mehmood, 2010) analyzing the impact of credit on rice pro-
ductivity and TE have focused generally on narrow issues and con-
clusions from these studies are far from being general since
differences exist in terms of agro-ecological zones and technolo-
gies as well as socioeconomic setting under which production
takes place. In developing countries like Pakistan, the farm produc-
tion is low due to traditional methods of farming, poor irrigation
facilities, smallholdings, low or misuse of modern agricultural
technology and less availability of credit (Abdullah et al., 2015;
Chandio et al., 2017; Hussain and Thapa, 2012; Rehman et al.,
2016; Zuberi, 1989). Low farm production often results in not
enough income being generated or small incomes. Thus, it is nec-
essary for credit agencies to come in and help farmers to apply
and improve agricultural practices. Therefore, this study is con-
ducted to investigate the effect of credit on the technical efficiency
of rice farmers in Sindh, Pakistan.
3. Methodology
3.1. Research area and data
This research was based on primary data collected during the
harvesting season of rice crop in the month of December 2016 from
upper, middle and lower regions of Sindh province of Pakistan. This
research have been designed specially to focusing the relationship
between rice productivity credit and technically efficiency in
Sindh, Pakistan, considering agro-ecological zones of Sindh, three
districts i.e. Shikarpur, Shaheed Benazir Abad previously known
as Nawabshah and Badin have been randomly selected; Shikarpur
represented the upper, Shaheed Benazir Abad for middle and Badin
for lower region of Sindh province with the purpose to become the
hub of major rice crop cultivation. The distribution of districts of
Sindh province of Pakistan by agro-ecological zones has been pre-
sented in (Fig. 3). For the said purpose ZaraiTaraqiyati Bank Limited

Fig. 3. Agro-ecological Zones.

Please cite this article in press as: Chandio, A.A., et al. The Nexus of Agricultural Credit, Farm Size and Technical Efficiency in Sindh, Pakistan: A Stochastic
Production Frontier Approach. Journal of the Saudi Society of Agricultural Sciences (2017), https://doi.org/10.1016/j.jssas.2017.11.001
4 A.A. Chandio et al. / Journal of the Saudi Society of Agricultural Sciences xxx (2017) xxx–xxx

(ZTBL) has been selected on the basis of its last year’s credit dis-
bursement in these regions of Sindh province. ZTBL was estab-
lished in 1951. This bank is specialized agricultural bank in
Pakistan and this bank mainly provide agricultural credit to the
farmers. In this study, three districts i.e. Shikarpur, Shaheed Bena-
zir Abad and Badin has been randomly selected. Six villages have
been randomly-selected from each district. From each village, 10
loanees have been selected randomly from the list of borrowers
provided by ZTBL. Thus, the total sample size is 180 rural house-
hold respondents. An interview schedule has been used for the col-
lection of required data include socioeconomic characteristics,
inputs-area under rice cultivated, quantity of fertilizers used,
quantity of seed used, labor used and the amount of credit
obtained by the rice growers from ZTBL.
3.2. Model specifications
Farrell (1957) broadly categorize measurement efficiency of
production in two approaches: parametric and nonparametric
approach. The parametric approach refers as stochastic frontier
approach (SFA) (Aigner et al., 1977) while the nonparametric is a
linear programing approach commonly referred as data envelop-
ment approach (DEA). Thus to achieve the objective of this study
a SPF approach has been used which provide a convenient frame-
work for conducting hypothesis testing since SFA uses statistical
techniques to estimate the parameters. A Cobb-Douglas form of
SFA is widely used by many empirical studies, particularly in those
related to developing agriculture (Battese and Coelli, 1995). To
examine the impact of institutional credit on technical efficiency
of rice farmers in Sindh, Pakistan, the stochastic production fron-
tier approach has been used.
The general form of the Cobb-Douglas SFA estimate is:
X
j minimum and maximum farm size were 1.50 acre and 140 acre.
Y i ¼ b0 þ bj X ij þ ðV i  U i Þ
i¼1
The linear form of the (Eq. (1)) can be written as:
ln Y i ¼ b0 þ b1 ln Ai þ b2 ln Si þ b3 ln F i þ b4 ln Li þ b5 ln CRi þ ðV i  U i Þ
where Y i denotes the rice output of ith farmer in mund; Ai repre-
sents the farm size area under cultivated rice crop in acres, Si repre-
sents the rice seed rate used in kg s; F i represents the chemical
fertilizer used in kg s; Li represents the total number of labor used
and CRi represents the amount of credit received. b0 represents
the intercept and bj0 s are maximum likelihood estimates coefficients
(MLE) of the input variables. The V i represents the random variable
which is assumed to be independent and identically distributed (iid)
Nð0; rv 2 Þ and the independent of the U i represents non-negative
random variable assumed to account for technical (in)efficiency in
production and assumed to be independently distributed as trunca-
tions at zero of the Nðmi ; ru2 Þ distribution. Where, mi represents
technical efficiency. All the stochastic frontier variables were trans-
formed into natural logarithms ðlnÞ to reduce heteroscedasticity.
Following equations (Eq. (2)), the SFA model parameter estima-
tion is achieved by Maximum Likelihood Estimates (MLE) and the
likelihood function estimates indicated in terms of the two vari-
ance parameters as indicated in Battese and Coelli (1995):
r2u
c¼ ; r2 ¼ ðr2v þ r2u Þ ð3Þ
r2v þ r2u
The Gamma ðcÞ reflects the validity of the random disturbances
ðv i ; ui Þ proportion of the model and its value between zero and one
ð0 6 c 6 1Þ. If the value of c is closer to zero, it means that the vari-
ation between actual output and the maximum possible output
mainly comes from other uncontrolled pure random factors, which
makes the use of the stochastic frontier model is meaningless. In
contrast, if the value of c is closer to one, it indicates that the vari-
ation comes mainly from the effects of one or more exogenous
(independent) variables that are used in the model. The maximum
likelihood estimate (MLE) of the parameters of the stochastic pro-
duction frontier was analyzed using Frontier 4.1 program (Coelli,
1996).
4. Results and discussion
4.1. Results of descriptive statistics analysis
The study examined the impact of agricultural credit on per
acre rice productivity in Sindh, Pakistan. The results of descriptive
statistics analysis are presented in Table 1. An average output of
rice was found to be 63 mds/acre with minimum and maximum
production of 28 mds/acre and 95 mds/acre respectively. Whereas,
the average farm size was 13.93 acre cultivated under rice with
ð1Þ Furthermore, the average seed rate per acre was used 20 kg with
minimum of 5 kg and a maximum of 40 kg. The mean labor used
in rice farming per acre per day was 7.21 persons. Additionally,
an average age of the sampled respondents was 41.11 years
whereas 26.33 years had farming experience. Moreover, the mean
ð2Þ value of formal education of the selected respondents was near 7
years.
4.2. The maximum likelihood estimate results
The study was conducted to ascertain the efficiency of rice
farmers in Sindh, Pakistan. The stochastic frontier model was
employed in the estimation of the results. Table 2, displays the
results of the maximum likelihood estimates. The results showed
that farm size, chemical fertilizer, labour and credit have a positive
and significant effect on rice productivity in Sindh, Pakistan, while
the seed rate also has a negative but not significant. The MLE of
farm size with respect to smallholders’ rice production is positive
and highly significant with 0.81 estimation coefficient. The result

Table 1
Descriptive statistics analysis. Source: Field Survey (2016)

Variable Unit Min. Max. Mean

Output Mounds/Acre 28.00 95.00 62.66
Land Acre 1.50 140.00 13.93
Seed kg/Acre 5.00 40.00 19.91
Fertilizer kg/Acre 100.00 350.00 179.72
Labor Persons/day/Acre 1.67 12.31 7.21
Loan PKR 20000.00 6084000.00 301913.2
Age Years 23.00 89.00 41.11
Education Years 0.00 16.00000 6.59
Experience Years 15.00 55.00 26.33

Please cite this article in press as: Chandio, A.A., et al. The Nexus of Agricultural Credit, Farm Size and Technical Efficiency in Sindh, Pakistan: A Stochastic
Production Frontier Approach. Journal of the Saudi Society of Agricultural Sciences (2017), https://doi.org/10.1016/j.jssas.2017.11.001
 A.A. Chandio et al. / Journal of the Saudi Society of Agricultural Sciences xxx (2017) xxx–xxx 5

Table 2
The Maximum likelihood estimates (MLE) results. Source: Filed Survey (2016)

Variables Coefficient Estimates SE t-ratio Sig.

Constant b0 0.9805 0.7711 1.2716 ns
Farm size b1 0.8101 0.0978 8.2873 ***
Seed rate b2 0.0361 0.0311 1.1631 ns
Fertilizer b3 0.2227 0.0834 2.6694 **
Labor b4 0.1629 0.0918 1.7751 *
Credit b5 0.2695 0.0923 2.9214 ***
Variance parameters
Sigma-squared (r2) 0.1324 0.0470 2.8192 ***
Gamma (c) 0.5678 0.3258 1.7426 *
Log likelihood function 0.325
***
Note: p < .01, **p < .05, *p < .1 level of significance.

stated that an increase in the land size would yield more than 80%
increase in the production of rice in the study area. This result is in
line with the findings of Abdallah (2016) and Tijani (2006) who
found a positive and significant link between farm size and yield.
This therefore means that when rice farmers have enough land,
their rice production improves significantly. Similarly, the impact
of credit facilities on rice production of farmers is positive and sig-
nificant with 0.27 MLE coefficient, which explains that when farm-
ers have access to credit facilities, the farmers’ rice production will
increase significantly. Our result consistent with the findings of
(Akudugu, 2016; Asadullah and Rahman, 2009; Bijalwan, 2011;
Gebremichael and Rani, 2012; Hussain, 2012; Kassali et al.,
2009). Institutional credit facilitates promotes farm productivity
and increase income of the farmers (Ayinde et al., 2010;
Khandker and Faruqee, 2003; Parry et al., 2004; Report, 2008).
Credit helps farmers to adopt productivity increasing technologies
(Mgina, 2011). Fertilizers are very important agricultural input for
high per acre yield and quick return. Nutrient wise 1 kg of fertilizer
produces almost 8 kg s cereals (rice, wheat and maize) respec-
tively. Additionally, the effect of chemical fertilizers on rice pro-
ductivity has a positive and significant at 5% significance level
with 0.22 MLE coefficient. The result revealed that an increase of
chemical fertilizer use leads to an increase rice productivity by
22%. The result is the same as the findings of (Abba, 2013;
Abdallah, 2016; Tijani, 2006). Kea et al., (2016) explained that an
increase in inputs such as land and fertilizer leads to an increase
in rice output between 2014 and 2015 in Cambodia. However,
labor and seed rate on the other hand have a negative effect on rice
productivity in the study area. The MLE coefficient of labor with
respect to rice production is negative 0.16 and significant at 10%
significant level, while negative 0.04 for seed rate but insignificant.
The results might be due to smallholder rice farmers use excess
labor and unimproved rice varieties. The findings are therefore in
contrast with (Abba, 2013; Abdallah, 2016) who found a positive
and significant relation between labor and rice production. The
study also supports the findings of (Tijani, 2006). Thus, it is very
important to disseminate machinery and improved rice seed to
improve rice productivity of the farmers in Sindh, Pakistan. The
diagnostic results of sigma square and Gamma are significant at
1% and 10% significant level. The Gamma result indicated that
57% of rice produced in Sindh smallholder farmers’ rice productiv-
ity can be explained by the farm size, credit, seed, fertilizer and
labor variables used in the model.
4.3. Results of elasticity scale and marginal effect
The corresponding elasticity scale and marginal effect of farm
size, seed, fertilizer, labor and credit is presented in Table 3. The
result showed that the largest and significant scale of elasticity
was found on the credit, which accounts 0.53 values followed by
farm size and fertilizer with 0.28 and 0.26 values, respectively. Fur-
ther, area under rice crop cultivation, adoption of improved/certi-
fied seed, balanced use of fertilizers and accessibility of credit are
an important factors which plays a vital role to increase rice pro-
ductivity and also improve welfare of the farmers. Institutional
credit has vital role in for enhancing farm productivity; and the
timely provision of credit allows farmers to purchase the necessary
agricultural inputs and machinery for farm operations (Khandker
and Faruqee, 2003; Saboor et al., 2009). While a negative elasticity
scale was found on labor and seed rate. This demonstrated that
credit is a very crucial input for rice production and followed by
farm size and chemical fertilizer use. However, the overall elastic-
ity scale of rice farmers was 0.88 which higher in the study area.
The marginal effects results of the input variables were in line with
elasticity estimates. The largest positive and significant marginal
effect was found on farmland size followed by credit and chemical
fertilizer. While the seed and labor have a negative marginal effect
on rice production.
4.4. Results of technical efficiency
The technical efficiency was derived from a stochastic produc-
tion frontier (SFA) estimate at the same time using FRONTIER 4.1
statistical tool. The descriptive statistics and technical efficiency
score ranges is presented in Table 4. The minimum and maximum
technical efficiency of rice farmers in the study area is 0.91 and

Table 3
Marginal effect and elasticity effect. Source: Filed Survey (2016)

Variables Scale of elasticity Marginal effect

ey/ex Std. Err. t-value dy/dx Std. Err. t-value
Farm size 0.279 0.034 8.130*** 0.817 0.101 8.130***
Seed rate 0.033 0.025 1.340 ns 0.042 0.031 1.340 ns
Fertilizer 0.261 0.100 2.610** 0.223 0.085 2.610**
Labor 0.160 0.093 1.730* 0.164 0.095 1.730*
Credit 0.531 0.186 2.850*** 0.271 0.095 2.850***
Scale of elasticity = 0.878
***
Note: p < .01, **p < .05, *p < .1 level of significance.

Please cite this article in press as: Chandio, A.A., et al. The Nexus of Agricultural Credit, Farm Size and Technical Efficiency in Sindh, Pakistan: A Stochastic
Production Frontier Approach. Journal of the Saudi Society of Agricultural Sciences (2017), https://doi.org/10.1016/j.jssas.2017.11.001
6 A.A. Chandio et al. / Journal of the Saudi Society of Agricultural Sciences xxx (2017) xxx–xxx
Table 4
Technical efficiency score. Source: Filed Survey (2016)
TE Range Cases
98.1–100 35
96.1–98.0 96
94.1–96.0 29
92.1–94.0 18
90.1–92.0 2 1.11
Mean 0.966
Minimum 0.906
Maximum 0.987
Standard Deviation 0.01
0.99 with an average technical efficiency score of 0.97. The results
demonstrated that rice farmers are 97% technically efficient in the
study area. As showed in Table 4 more than 53% of the respondents
are scored between 96 and 98% technical efficiency level. Addition-
ally, near to 20% of the respondents scored above 98% technical
efficiency level. The result indicated that the majority of the small-
holder farmers are technically efficient.
5. Conclusion and policy recommendations
Agriculture sector has an important role in the economy of Pak-
istan and it is the essential source of food, employment and
income. This sector contributes around 20% to the GDP, employs
nearly 42.3% of country’s labor force. Rice is high valued cash
and major export crop in Pakistan. The main purpose of this study
was to investigate the impact of agricultural credit and farm size
on the technical efficiency of rice productivity in Sindh, Pakistan.
The research was conducted in the northern and southern parts
of Sindh, Pakistan, where rice is the main source of livelihoods. A
set of questionnaires was used to obtained data from one hundred
and eighty (180) rice farmers. A Cobb-Douglas stochastic frontier
analysis approach (SFA) was applied to estimate the maximum
likelihood (MLE) using FRONTIRE 4.1 statistical tool. The MLE
results revealed that credit, farm size and fertilizer significantly
influence on rice production. Additionally, the larger and signifi-
cant scale of elasticity was found on credit while larger and signif-
icant marginal effect was found on farm size. Further, the mean
technical efficiency was 0.97, which implies that 97 percent of rice
farmers were technically efficient in Sindh, Pakistan. Credit was
found to have positive and significant effect on efficiency, suggest-
ing that proper utilization of credit can enhance rice productivity
and thereby improve the livelihoods of the irrigated rice farmers.
The findings of this study make anyone to conclude that the
ZaraiTaraqiyati Bank Limited (ZTBL) is effectively serving the farm-
ing sector of Pakistan through their various credit schemes hence
reducing the poverty, increasing the income and improving the liv-
ing standard of rural households. ZTBL was established in 1951 and
this bank mainly provide agricultural credit to the farmers in
national and provincial level. Based on the findings of the study,
for making better improvement in credit disbursement system
and the impact of credit our study recommended that the improve-
ments of agricultural credit schemes, ZTB should supply credit
timely during the sowing season of rice crop and must be ensured
proper utilization of the credit. Also, the technical guidance should
be provided by banks through training workshop and program
related to get maximum rice productivity.
Acknowledgements
The authors are very thankful to the College of Economics,
Sichuan Agricultural University Chengdu, China for its financial
support. Moreover, the authors are also indebted to the reviewers
Please cite this article in press as: Chandio, A.A., et al. The Nexus of Agricultural Credit, Farm Size and Technical Efficiency in Sindh, Pakistan: A Stochastic
Production Frontier Approach. Journal of the Saudi Society of Agricultural Sciences (2017), https://doi.org/10.1016/j.jssas.2017.11.001
for their positive suggestion that helped to improve the content of
this manuscript.
Frequency
19.44 Competing interests
53.33
16.11 The authors of this research work declare that they have no con-
10.00
flict of interests regarding the publication of this paper.
Funding Source
There is no direct funding source of this paper.
References
Abate, G.T., Francesconi, G.N., Getnet, K., 2014. Impact of agricultural cooperatives
on smallholders’ technical efficiency: empirical evidence from Ethiopia. Ann.
Publ. Cooperative Econ. 85, 257–286.
Abba, M.W., 2013. Technical Efficiency of Small Scale Rice Production in Adamawa
State, Nigeria. University Malaysia Sarawak, (UNIMAS).
Abdallah, A.-H., 2016. Agricultural credit and technical efficiency in Ghana: is there
a nexus? Agric. Financ Rev. 76, 309–324.
Abdullah, D.Z., Khan, S.A., Jebran, K., Ali, A., 2015. Agricultural credit in Pakistan:
past trends and future prospects. J. Appl. Environ. Biol. Sci. 5, 178–188.
Aigner, D., Lovell, C.K., Schmidt, P., 1977. Formulation and estimation of stochastic
frontier production function models. J. Econometrics 6, 21–37.
Akudugu, M.A., 2016. Agricultural productivity, credit and farm size nexus in Africa:
a case study of Ghana. Agric. Financ Rev. 76, 288–308.
Amaza, P., Maurice, D., 2005. Identification of factors that influence technical
efficiency in rice-based production systems in Nigeria. Rice Policy and Food
Security in sub-Saharan Africa, 70.
Asadullah, M.N., Rahman, S., 2009. Farm productivity and efficiency in rural
Bangladesh: the role of education revisited. Appl. Econ. 41, 17–33.
Asante, B., Wiredu, A., Martey, E., Sarpong, D., Mensah-Bonsu, A., 2014. NERICA
adoption and impacts on technical efficiency of rice producing households in
Ghana: implications for research and development. Am. J. Exp. Agric. 4, 244.
Ayinde, O., Ajewole, O., Ogunlade, I., Adewumi, M., 2010. Empirical analysis of
agricultural production and climate change: a case study of Nigeria. J. Sustain.
Dev. Africa 12, 275–283.
Battese, G.E., Coelli, T.J., 1995. A model for technical inefficiency effects in a
stochastic frontier production function for panel data. Empirical Econ. 20, 325–
332.
Bijalwan, A., 2011. Productivity assessment of agricultural crops in existing
agrihortisilvicultural system of mid hills of Central Western Himalaya, India.
Afr. J. Agric. Res. 6, 2139–2145.
Buriro, A., Khooharo, A.A., Ghulam, T., 2015. Technical efficiency of rice production
Sindh, Pakistan: A STATISTICAL ANAlysis. Sci. Int. 27, 6225–6230.
Chandio, A.A., Magsi, H., Rehman, A., Sahito, J.G.M., 2017. Types, sources and
importance of agricultural credits in Pakistan. J. Appl. Environ. Biol. Sci 7, 144–
149.
Coelli, T.J., 1996. A guide to FRONTIER version 4.1: a computer program for
stochastic frontier production and cost function estimation. CEPA Working
papers.
Coelli, T.J., Battese, G.E., 1996. Identification of factors which influence the technical
inefficiency of Indian farmers. Aust. J. Agric. Resour. Econ. 40, 103–128.
Duy, V.Q., Neuberger, D., Suwanaporn, C., 2012. Access to credit and rice production
efficiency of rural households in the mekong delta. J. Account. Business Res. 3,
33–48.
FAO, 2015. Country Fact Sheet on Food and Agriculture Policy Trends.
Farrell, M.J., 1957. The measurement of productive efficiency. J. R. Stat. Soc. Ser. A
(Gen.) 120, 253–290.
Gebremichael, B.Z., Rani, D.L., 2012. Total factor productivity change of ethiopian
microfinance institutions (mfis): a malmquist productivity index approach
(mpi). Eur. J. Business Manage. 4, 105–114.
GOP, 2016. Economic Survey of Pakistan 2015-16. Agricultural Statistics of Pakistan.
Ministry of Food Agriculture and Livestock Division, Islamabad.
Hussain, A., 2012. Impact of credit disbursement, area under cultivation, fertilizer
consumption and water availability on rice production in Pakistan (1988–
2010). Sarhad J. Agric. 28, 95–101.
Hussain, A., Thapa, G.B., 2012. Smallholders’ access to agricultural credit in Pakistan.
Food Security 4, 73–85.
Kassali, R., Ayanwale, A., Williams, S., 2009. Farm location and determinants of
Agricultural productivity in the Oke-Ogun Area of Oyo State, Nigeria. J. Sustain.
Dev. Africa 11, 1–19.
Kea, S., Li, H., Pich, L., 2016. Technical efficiency and its determinants of rice
production in Cambodia. Economies 4, 22.
Khalid Bashir, M., Mehmood, Y., 2010. Institutional credit and rice productivity: a
case study of District Lahore, Pakistan. China Agric. Econ. Rev. 2, 412–419.
Khandker, S.R., Faruqee, R.R., 2003. The impact of farm credit in Pakistan. Agric.
Econ. 28, 197–213.
 A.A. Chandio et al. / Journal of the Saudi Society of Agricultural Sciences xxx (2017) xxx–xxx 7

Laha, A., 2013. Technical efficiency in agricultural production and access to credit in
West Bengal, India: a stochastic frontier approach. Int. J. Food Agric. Econ., 53–
64
Martey, E., Wiredu, A.N., Etwire, P.M., 2015. Impact of credit on technical efficiency
of maize producing households in Northern Ghana, Selected Paper presented at
the Centre for the Study of African Economies (CSAE) Conference, pp. 22–24.
Masuku, M.B., Raufu, M., Malinga, N.G., 2015. The impact of credit on technical
efficiency among vegetable farmers in Swaziland. Sustain. Agric. Res. 4, 114.
Mgina, F., 2011. Economic Reforms and their Impact on Small Farmer Credit Needs
and Food Security in Tanzania, PhD thesis, University of Reading, Reading.
Moses, J., Adebayo, E., 2007. Efficiency of factors determining rainfed rice
production in Ganye Local Government Area, Adamawa State. J. Sustain. Dev.
Agric. Environ. 3, 20–30.
Parry, M.L., Rosenzweig, C., Iglesias, A., Livermore, M., Fischer, G., 2004. Effects of
climate change on global food production under SRES emissions and socio-
economic scenarios. Global Environ. Change 14, 53–67.
Rasul, G., Mahmood, A., Sadiq, A., Khan, S., 2012. Vulnerability of Indus delta to
climate change in Pakistan. Pakistan J. Meteorol., 8
Rehman, A., Jingdong, L., Khatoon, R., Hussain, I., Iqbal, M.S., 2016. Modern
agricultural technology adoption its importance, role and usage for the
improvement of agriculture. Am.-Eurasian J. Agric. Environ. Sci. 16, 284–288.
Report, W.D., 2008. United Nations Development Programme, United Nations, New
York, NY.
Saboor, A., Hussain, M., Munir, M., 2009. Impact of micro credit in alleviating
poverty: an Insight from rural Rawalpindi, Pakistan. Pak. J. Life Soc. Sci. 7, 90–
97.
Tijani, A., 2006. Analysis of the technical efficiency of rice farms in Ijesha Land of
Osun State, Nigeria. Agrekon 45, 126–135.
Zuberi, H.A., 1989. Production function, institutional credit and agricultural
development in Pakistan. Pak. Dev. Rev., 43–55

Please cite this article in press as: Chandio, A.A., et al. The Nexus of Agricultural Credit, Farm Size and Technical Efficiency in Sindh, Pakistan: A Stochastic
Production Frontier Approach. Journal of the Saudi Society of Agricultural Sciences (2017), https://doi.org/10.1016/j.jssas.2017.11.001
View publication stats