The Impact of Market Prices on Farmers' Crop Choices in Ghana

How do smallholder farmers in Ghana navigate fluctuations in crop prices and market uncertainty? This study explores the dynamic land allocation decisions of smallholder farmers between two main crops produced in Ghana: maize and cassava. While economic theory suggests that farmers adjust their crop choices in response to market prices, these decisions are more complex, influenced by price risks, resource constraints, and local conditions. A key challenge in this context is the limited availability and accessibility of timely market data in developing countries, which restricts farmers’ ability to make fully informed decisions. Leveraging market data and an agricultural household model, we investigate whether and how farmers respond to changes in market price trends and price volatility of maize and cassava. We hypothesize that farmers will expand maize cultivation in response to positive price shocks but will show limited responsiveness to negative price shocks. This response reflects the dual pressures of ensuring food security and maximizing economic returns. Additionally, we expect that greater access to price information enhances responsiveness to market signals, while higher price risk discourages land allocation to volatile crops. Furthermore, we hypothesize that farmers farther from markets or ports are less likely to be influenced by market and import prices, respectively, due to higher transaction costs and reduced market access. These findings promise to inform policies that enhance market transparency, risk management, and equitable access to agricultural opportunities.