1.

1 Definition of some concepts in producer theory

In microeconomic analysis, the study of producer behavior is a fundamental issue in production

decisions. Indeed, faced with scarce resources, the rational producer with the objective of
maximizing profit must make choices throughout the production process. In the present case, rice
farmers make decisions regarding rice production resources, technologies, methods, or systems
in view to maximize paddy rice production. A certain number of vocabularies related to
production activity and recurrent in this thesis must be defined.

1.1.1 Agricultural production and production factors

In this thesis, the subject of the study is, on the one hand, the determinants of the participation of
rice farmers in the credit market and the contribution of agricultural credit to paddy rice
production on the other. In other words, the two core variables are agricultural credit and paddy
rice production. Paddy rice production encompasses all activities from plowing to harvesting
rice. This thesis does not cover post-production activities (processing and marketing of paddy
rice, etc.). However, some aspects, such as paddy rice marketing, are taken as explanatory
variables.
Agricultural production can be defined as a combination of productions factors to produce an
agricultural product. The production or the product that is generated from the production
processes is called output. Whatsoever the nature of the agricultural product (output), the final
objective is to serve in human life as food or other goods (fuels, fibers, or raw materials) that are
important for humankind. For its contribution regarding the consumption aspect, agricultural
product or output can immediately serve for human consumption (food crops) or must undergo a
number of industrial transformations (cash crops) before serving in human consumption.
In the agricultural sector, production factors are all resources used by farmers in the
production process. Production factors used to produce a different array of agricultural products
are called inputs. A set of factors intervene in agricultural production such as land, labor,
physical capital (set of agricultural tools), and others (water, seeds, fertilizer, herbicide, and so
forth). A factor such as human capital (education or know-how) is also relevant in production,
although it is less easy to apprehend. In general, production factors can be distinguished
according to some criteria. First, the factors of production can be variable (labor) or fixed
(physical capital). Second, some production factors can be substitutes (e.g., mineral fertilizer and
organic fertilizer), while some are complements (e.g., rice farm size and seed). Finally, factors
such as land and water are primary production resources, and others like (fertilizer and
herbicides) are considered intermediary resources.

1.1.2 Agricultural production function

The production function is a quantitative relationship between agricultural production (output)

and inputs. In particular, it indicates the maximum possible agricultural output from any
combination of production factors, given the factor endowment and the state of available
technology. Mathematically, agricultural output and inputs are linked by the following relation.

Y =f ( X i ) (2-1)

Where the quantity of agricultural output (Y ) produced is a function of the combined input
amounts of each factor ( X i ¿.
The production function is determined by technology. In other words, for each production
technology, it is possible to build different production functions. The different technologies can
give rise to several functional forms. The widely applied production functions in production
theory are the Cobb-Douglas production function (C-D), the Constant Elasticity of Substitution
(CES) production function, and the Transcendental Logarithmic (Translog) production function
(Hoff, 2004).

1.1.3 Agricultural productivity

In any production activity such as agricultural production, one of the aspects that should attract
attention is productivity. Indeed, productivity measures the efficiency in which the production
resources are used in any production system. In the context of this study, agricultural
productivity measures the efficiency of the use of production factors (FAO, 2018b). Overall,
agricultural productivity growth results from one or a combination of the following effects:
agricultural technique changes, technology improvements, or scale economies (Färe et al., 1989).
Mathematically, agricultural productivity, agricultural production, and production factors are
linked by the relation defined below.
 Y
y= (2-2)
Xi

Where y is the productivity, Y is the output, X i represents the set of inputs.

There are several productivity indicators, such as partial indicators (land, labor, or capital
productivity) and Total Factor Productivity (TFP). However, partial indicators have some
shortcomings. Since inputs are associated over the production process, the productivity of an
input can be linked to the consumption of other inputs (FAO, 2018b). For example, based only
on the increase in paddy rice production, it is difficult to draw a conclusion whether this increase
is due to intensification, technical change, or innovation. Besides, an increase in labor
productivity does not give any information on the causes or sources of this change.
In contrast, the TFP takes into account the contribution of the main inputs used in the production
and measures how efficiently inputs are combined across all the production process (FAO,
2018b; Fuglie & Wang, 2012). Therefore, it is a suitable indicator to evaluate the global
efficiency of the production process. Different methods are used to measure the TFP growth
(FAO, 2018b). The most common are; the frontier analysis approach and the growth accounting
approach.
In the agricultural sector, the concept of returns to scale, which refers to the proportionality
of changes in output after the quantities of all inputs in production have been changed by the
same factor, is essential in decision-making. Agricultural productivity can be characterized by an
increasing return to scale, decreasing return to scale, or constant return to scale.

1.1.4 Agricultural production costs

Agricultural production costs can be defined as the set of financial expenses incurred by farmers,
particularly in the acquisition of inputs and also in the execution of activities throughout the
production process. The total production costs of a given agricultural product (paddy rice in the
present case) are the sum in the monetary value of all the inputs used by the farmer to achieve its
production during the given agricultural season. These total production costs can be represented
in the following equation.

n
C=∑ wi x i (2-3)
i=1
Where C is the total costs, n is the number of inputs x i (i=1,….,n) with w i (i=1,….,n) the unitary
prices.

1.1.5 Production maximization and costs minimization problem

Based on the producer theory, a competitive rice farmer takes input prices as given and chooses a
production plan (a technologically feasible set of inputs) to maximize the paddy rice. The
objective of the rice farmer being to maximize the production of paddy rice or to minimize
production costs, production maximization (2-4) or cost minimization (2-5) problem is set up as
follows:

{max
s.t .C
Y
(2-4)

{min C
s .t .Y
(2-5)

The reasons that underpin this study are multiple and constitute the interest of the present
thesis. In the growth processes implemented by many countries in SSA, including Côte d'Ivoire,
the growth of agricultural production is an important factor in the dynamism of several industrial
branches, either as a supplier or a customer, but also as a sector of distribution. The contribution
of agriculture to economic development and poverty reduction is an issue to which economists
have paid enough attention. The perception of an economic singularity of agriculture, compared
to other sectors of activity (commerce, industry), goes back to the first economic theories. In the
thought of the Physiocrats, agriculture is the only activity really producing wealth and “makes
the virtue of people and the strength of states”. The proponents of economic development
emphasize the importance of the agricultural sector in the development process. A dynamic
agriculture increases labor productivity in the rural economy, increases wages, and gradually
eliminates the worst dimensions of absolute poverty (Timmer, 2005). Growth in the agricultural
sector contributes more to poverty reduction and hunger than growth attributable to non-
agricultural sectors (Bresciani & Valdés, 2007; Christiaensen & Demery, 2007; Köhn, 2014). As
Schultz (1980) argued, most of the world's poor live in rural areas, and a large proportion earn
their living from agriculture. In addition to being the sector for the livelihoods of rural
households, the agricultural sector is the sole supplier of food to the population and contributes
significantly to the GDP of developing countries. Therefore, the key role of credit in the
development of the agricultural sector cannot be underestimated. More than in the past,
investments in agriculture, both from private and public sources, are strongly recommended
nowadays (Köhn, 2014).