No 253 – March 2017

Climate Change Challenges, Smallholder

Commercialization and Progress out Poverty in Ethiopia

Gutu T. Boka

Editorial Committee

Shimeles, Abebe (Chair) Anyanwu, John C. Faye, Issa Ngaruko, Floribert Simpasa, Anthony Salami, Adeleke O. Verdier-Chouchane, Audrey

Coordinator

Salami, Adeleke O.

Copyright © 2017 African Development Bank Headquarter Building Rue Joseph Anoma 01 BP 1387, Abidjan 01 Côte d'Ivoire E-mail: afdb@afdb.org

Rights and Permissions

All rights reserved.

The text and data in this publication may be

reproduced as long as the source is cited.

Reproduction for commercial purposes is

forbidden.

The Working Paper Series (WPS) is produced by the

Macroeconomics Policy, Forecasting and Research

Department of the African Development Bank. The

WPS disseminates the findings of work in progress,

preliminary research results, and development

experience and lessons, to encourage the exchange

of ideas and innovative thinking among

researchers, development practitioners, policy

makers, and donors. The findings, interpretations,

and conclusions expressed in the Bank’s WPS are

entirely those of the author(s) and do not

necessarily represent the view of the African

Development Bank, its Board of Directors, or the

countries they represent.

Working Papers are available online at

http:/www.afdb.org/

Correct citation: Boka, Gutu T. (2017), Climate Change Challenges, Smallholders’ Commercialization, and Progress out of Poverty

in Ethiopia, Working Paper Series N° 253, African Development Bank, Abidjan, Côte d’Ivoire.

Climate Change Challenges, Smallholder

Commercialization and Progress out Poverty in

Ethiopia

Gutu T. Bokaa

a Visiting Research Fellow, Macroeconomics Policy, Forecasting and Research Department, African

Development Bank (AfDB) Abidjan, Cote d’Ivoire and Assistant professor at Ambo University, Ethiopia. The

author extends his deepest appreciation to the African Development Bank (AfDB) and the African Economic

Research Consortium (AERC) for opening up and financing this fellowship opportunity. He expresses his

gratitude to Dr. Balgis Osman-Elasha as well for her professional supports and comments as the research mentor.

Prof. John C Anyanwu also deserves thanks for his continuous support. The author is also indebted to the support

of World Vision Ethiopia in facilitating logistics for field visit to the study sites for the second round in June 2016.

Usual disclaimer applies.

AFRICAN DEVELOPMENT BANK GROUP

Working Paper No. 253

March 2017

Office of the Chief Economist

Abstract

In Ethiopia, smallholder farmers’

commercialization and integration into

the market has been one of the policy

directions to ensure households’

progress out of poverty and maintain the

sustainable development trajectory. A

lot of progress has been made in this

endeavor over the past couple of decades.

However, market participation and

degrees of commercialization still

remained unsolved puzzle. This paper

investigates smallholders’ market

participation, degree of

commercialization and the linkage to

poverty reduction using a survey of 453

HH in central part of Ethiopia.

Household Commercialization Index

(HCI) approach was used to measure

degree of commercialization, while a

double hurdle regression model was

employed to identify the key

determinants for market participation

and degree of commercialization. Then

the relationship between

commercialization and poverty was

examined by using logistic regression.

The result indicates that significant

proportion of HHs was out of a product

market and the degree of

commercialization still remains very low.

While poverty has opposite relationship

to market participation, it was found to

be better influenced by other factors

than degree of commercialization.

JEL Classification: Q01, Q12, Q16, Q18

Key words: Climate change, degree of commercialization, market participation, double

hurdle, logistic regression, Ethiopia

5

1. INTRODUCTION

1.1 Background

Given the livelihood options outside smallholder farming for the largest set of the population in

developing countries and in recognition of the potential for market to unlock economic growth and

development gave rise to market led rural development paradigm during the 1980s (Timmer,

1997). For this purpose policies were once again trending in favor to support smallholder farmers

and their livelihood development as a key driver of poverty reduction. For several decades,

attention was given to the improvement of production and productivity so as to pave the ways for

smallholder commercialization. That was based on the evidences from around the word that

smallholder farming, which is the predominant source of livelihoods was seen to be as efficient as

larger farms when farmers have received similar support services and inputs (seed, fertilizer, and

credit) so as to improve their production and productivity (World bank, 2007). That is why many

countries and international development agencies were giving due concern to intensification and

commercialization of smallholder farming as a means of achieving poverty reduction in their

official policies (Leavy, and Poulton, 2007).

Agricultural sector contributes about 43% of the Gross Domestic Product (GDP), 80% of

employment, and 90% of export (Demese et al., 2010). Smallholder farmers account for more than

85% of the rural population that relies on agricultural production. Ethiopia has liberalized its

economy and developed poverty reduction strategies that underpin market-led strategies for broad

based agricultural development and economic growth. Within the broader strategy, smallholder

farming is believed to be the key to livelihoods of many rural households. Given the total sum of

the population that directly and indirectly make their livelihoods from the sector; its development

is viewed as a means to improve the living standards of smallholders and generate economic

growth. However, the production is still characterized by low output, poor access to land, poor

access to inputs, poor irrigation system, little access to know-how (risk management, technology,

and skill), low level of market orientation, poor infrastructure and under developed institutions

(Aman et al, 2014 quoted from Bezabih and Hadera, 2007; CSA, 2009; MoFED, 2005; Moti, 2007;

Tilaye, 2010).

The Ethiopia’s Growth and Transformation Plan I (GTP I) (2010/11-2014/15) retained agricultural

sector growth as the prime driver of economic growth. The sector’s strategy was further informed

by the Agriculture Growth Program (AGP) and lessons drawn from implementation of the past

development plans. The agricultural strategy directed on placing major effort to support the

intensification of marketable farm products both for domestic and export markets, and by small

and large farmers. Fundamentals of the strategy included the shift to produce high value crops, a

special focus on high-potential areas, facilitating the commercialization of smallholder agriculture,

and supporting the development of large-scale commercial agriculture where it was feasible. In

order to ensure this transformation, ranges of public investments were set within the plan for

continued scale-up of the successes registered in the past. Transparent and efficient agricultural

marketing system were attempted to be strengthened. Investment in marketing infrastructure was

also made to increase (FDRE, 2010). Similarly under current GTP II (2015/16 – 2019/2020) the

same plan is made to mobilize all possible efforts to ensure adequate agricultural input supply and

strengthen agricultural extension services, so as to boast productivity and then commercialization.

This clearly indicates that agriculture continue to be source of growth and poverty reduction. Under

6

the new plan, commercialization of agriculture is given due emphasis in preparation of the path to

manufacturing industry led economic growth during the following 5 years’ plan.

Smallholder commercialization typically leads to an increased diversity of marketed commodities

at the national level and increased specialization at regional and farm levels. Markets allow

households to increase their incomes by producing that which provides the highest returns to land

and labour and then use the cash to buy household consumption items rather than being constrained

to produce all the goods that the household needs to consume. In the long run, subsistence

agriculture may not be a viable activity to ensure sustainable household food security and welfare.

In this regard commercializing smallholder agriculture is an indispensable pathway towards

economic growth and development of Ethiopian farmers in their progress out of poverty.

Therefore, there is a need to identify the degree and driving forces of commercialization of

smallholder farming and possible areas of intervention. Such analysis will help to design

appropriate instruments, institutions and other interventions for sustainable economic development

of smallholder farmers (Ele, et al 2013; quoted from Abera (2009); Braun (1995); and Pingali and

Rosegrant (1995).

Even though smallholder commercialization as means of agricultural sector transformation in

Ethiopia is said of received huge investment for many decades, and in spite of the increasing trend

in food crop production, commercialization of smallholder farming is not yet high enough to

enable farmers benefit from increased income and stimulate rural growth in the study area as well

as in the country as a whole. Farmers are still undertaking subsistence farming and unable to cop

up with price and climate change induced shocks and stresses.

1.2 Value Additions and Relevance to the AfDB’s High 5s

Agriculture and its commercialization plays a dominant role in supporting rural livelihoods and

economic growth over most of Africa As the countries continue to depend on this sector for their

economic progress as well as livelihood development of their nations, the relevance of

commercializing and integrating smallholder to market remains a priority. As the largest segment

of the population make their livelihoods directly from the sector, the sector’s development through

innovation, technology, and market orientation would present sustainable poverty reduction and

achievement of the sustainable development Goals.

As a means to ensure reduction of poverty, promotion of sustainable development and bringing

complete transformation of Africa, the African Development Bank Group has set priority areas of

engagement for the 2013–2022 strategic period. On September 1, 2015, the eighth elected

President of the African Development Bank Group, set down a new agenda for the Bank Group.

These agendas are called the high fives development priorities for the institution. The High 5s are

to: Light up and Power Africa; Feed Africa; Industrialize Africa; Integrate Africa; and Improve

the Quality of Life for the People of Africa. These focus areas are essential in transforming the

lives of the African people and therefore consistent with the United Nations agenda on Sustainable

Development Goals. (SDGs).

7

This renewed commitment and refinement of the high 5s reinforces the choices of the last five

years, building on lessons learned and addressing the challenges of tomorrow. It is a strategy that

provides a response to sustainable and inclusive growth, whereby inclusive entails addressing the

wider poor communities across the continent. The bank’s strategy of the high 5s is found on two

major objectives, one of which is inclusive growth. Africa’s gradual transition to “green growth”

will protect livelihoods, improve water, energy and food security, promote the sustainable use of

natural resources and spur innovation, job creation and economic development. Hence at the core

is the building of the improvement of the life and livelihoods of nations and nationalities. It is

against this priority of the bank that this research focused on the market participation and degree

of smallholder commercialization as a strategy to reduce poverty, given the prevailing agricultural

logistics and climate change challenges.

In view of this, the paper is devoted to address the following specific objectives: a) to examine

households’ market participation decision, b) to measure the degree of commercialization among

smallholder farmers in light of the prevailing climate and logistic challenges, c) to analyzes the

impact of commercialization on household poverty level and finally the research attempts to

develop a comprehensive framework for measuring smallholders’ participation in a market and

their level of commercialization. The value addition of this paper over those earlier works will be

that it brings in variables related to climate variability and agricultural logistics clearly in the

measurement of commercialization level and household poverty.

2. LITERATURE REVIEW

2.1 Basic Concepts of Smallholder Commercialization

Commercialization as a concept is multi-dimensional and no one definition has been able to

capture all its facets. The definitions differ in focus and breadth, which has also influenced its

measurement. It is more than whether or not a cash crop is present in a production system (von

Braun et al., 1994). Sometimes a proportion of the so called traditional food crops are sold while

on the other hand, some proportions of the so called traditional cash crops are retained for home

consumption. Similarly, agricultural commercialization is more than marketing agricultural

outputs because commercialization can also occur on the input side with use of purchased inputs

in agricultural production (von Braun et al., 1994).

Pingali and Rosegrant (1995) and Pingali (1997) defined agricultural commercialization as “when

household decisions on product choice and input use are made based on the principles of profit

maximization”. Therefore, commercialization takes place when households purposively target

markets in their production decisions rather than being simply related to the amount they are likely

to sell as a result of surplus production. In other words, commercialization occurs when production

is in response to market signals and on the basis of comparative advantage, whereas subsistence

production is on the basis of production feasibility and subsistence requirements with only surplus

product sold after meeting own consumption needs. Hence, commercialization by many authors is

taken to be a deliberate action on the part of the agricultural producers of their own free will or by

means of coercion to use the land, labour, implements and other inputs in such a way that a greater

or smaller part of the crops and/or animals produced is for exchange or sale (Ele, 2013; Okezie et

al, 2008).

8

From methodological and analytical perspective, Berhanu and Moti (2010) broadened the concept

of agricultural commercialization by asserting that it is a combination of both market orientation

and market participation. Market orientation in this context is defined as agricultural production

decision based on market signals while on the other hand, market participation is simply the

produce offered for sale and use of purchased inputs. From this approach, market orientation seems

to be more inclined toward profit maximization while market participation appears to aim at utility

maximization. Therefore, commercialization is a combination of market oriented production and

the actual amount bought from or offered to the market for sale. However, most agricultural

commercialization literature makes little distinction between market orientation and market

participation

Other bodies of the wider literature broadly defined commercialization as having greater

engagement with markets, either for inputs, outputs, or both by small family farms. For example

Govereh et al, (1999) defined agricultural commercialization as “the proportion of agricultural

production that is marketed”. Agricultural commercialization aims to bring about a shift from

production for solely domestic consumption to production dominantly market oriented. In line

with this definition, Sokoni (2007) defined commercialization of smallholder production as “a

process involving the transformation from production for household subsistence to production for

the market”. Moreover, Hazell et al, (2007) found out that most definitions refer to agricultural

commercialization as “the degree of participation in the output markets with much on cash

incomes”.

On the other hand Jennifer and Tina (2014) consider commercialization as constructed of two

indices, which include the number of food crops produced and cash crops produced that allows

production diversity, with cash crops such as chat, coffee, cotton, ‘enset’ (false banana), hops

(‘gesho’), sugar cane, tea, tobacco, and sisal.

Therefore from the above concepts of smallholder commercialization, it is understandable that

commercialization involves two steps; the first being the participation in input and output market

and the second involving the degree of participation in a market. The latter is usually measured by

the amount of the staple products and commercial outputs produced and offered to the market as

compared to the total production. Thus it can be concluded that most commonly commercialization

occurs in peasant agriculture is through production of marketable surplus of staple food over what

is needed for own consumption. Another form of commercialization involves production of cash

crops in addition to staples or even exclusively.

2.2 Polices and Strategies of Smallholder Commercialization

Policy makers have recognized the importance of increased smallholder market participation

(commercialization) in improving agricultural productivity and thereby tackling national poverty

and food insecurity (Republic of Kenya, 2010). This recognition is justified on the basis that many

of the African economy is heavily dependent on the agricultural sector which contributes

significantly to Gross Domestic Product (GDP) and accounts for over 75% of the national

employment (Republic of Kenya, 2005) –This is a clear indication of the low labour productivity

in the country’s agricultural sector.

9

In this regard commercialization of smallholder agricultural producers through increased

participation in output markets has been promoted as one of the best strategy to address low

agricultural productivity that has led to high levels of poverty and food insecurity among rural

farming households in developing countries (Jaleta et al., 2009; Thurlow et al., 2007;

Wickramasinghe and Weinberger 2013). Even the market liberalization policy agendas that were

widely promoted in sub-Saharan Africa (SSA) in the 1980s and 1990s under structural adjustment

programmes (SAPs) were broadly aimed at stimulating and enhancing agricultural

commercialization. Though these liberalization policies were aimed at opening up new market-led

opportunities for economic growth, their results were mixed in most countries. Even to date, many

smallholder producers continue to engage in subsistence agriculture and thus unable to benefit

from commercialization opportunities presented by the liberalized markets (Olwande and

Mathenge 2011; Siziba et. al., 2011; Wollverton et al., 2014).

In addition to the policy instruments that encourage more production and productivity and

specialization in production, there were also other several policy instruments that the African

government did take in protecting the domestic producers from facing cheaply imported

agricultural outputs. Hence for decades, domestic agricultural markets in Ethiopia were heavily

protected against low priced imports and even sometimes governments have been supporting

producer output prices through parastatals (Barrett, 2008; Todaro, 1989; Reyes et al., 2012). These

policy instruments were aimed at protecting the welfare of the producer and the country at large.

However, following the international food crisis of 2006 and 2008, international food prices

doubled with poor households in developing countries being worst hit. Though these prices have

come down after 2008, they are still higher than the period before the surge and projections indicate

that they are likely to remain so for the next decade (IFAD, 2010). That prediction was proved by

the significant increase in grain price and a relatively decrease in livestock price in the country

during the 2015 following the historical drought of the El Nino situation; where ‘Meher’ (major

production season) as well as ‘Belg’ (minor production season) have failed in many part of the

country with yield loss estimated to 44% to 99% (Okidi et al, 2015).To date, much of the

production response to these higher food prices has come from rich countries.

2.3 Smallholder Commercialization Challenges and Prospects

2.3.1 Challenges

In the developing world, by and large the potential of markets as an engine of agricultural growth

and pathway to exit poverty for the majority of the smallholder farmers is not fully exploited.

Smallholder farmers are constrained by many problems including poor access to modern inputs

and credit, poor infrastructure, inadequate access to markets, land and extension services. Thus, it

has not been possible for farmers to integrate with the market and enjoy the benefits of

commercialization and would be less like to benefit even in the future unless the barriers are

removed and better environment is created (Bernard and Spielman, 2008). They are also

constrained by other bottlenecks that impede their capacity and potential to produce and market

their produce. According to Al-Hassan et al. (2006), limited access to guaranteed markets for

products and inputs is a major problem. They further argue that local commodity markets are

characterized by high volatility, a situation that poses challenges for smallholders to effectively

participate in the market. These problems incapacitated them in their efforts to expand production

in the first place and then market the outputs in the second place.

10

Another challenge is the fact that the largest proportions of smallholder farmers are producers of

staple food grains. Commercializing grain needs special attention due to the fact that grain

(example wheat, maize, teff etc for Ethiopia) is a staple crop in most sub-Sahara African countries.

So its market availability and price matters to the population both individually and collectively.

Secondly, grain is produced seasonally but consumed daily. Thus it is a great concern and subject

to market intervention. Grain is bulky, non-perishable and traded in large volumes. It has a low

unit cost but segregation with respect to quality is important in marketing. Grain is produced by

large number of small-scale farmers; each producing a small part of the total quantity sold leaving

them to be price takers (Leykun and Jemma 2014).

Even though a considerable percentage of smallholder farmers are producers of some commercial

crops, the challenge within that sub sector sometimes appears to exceed that of grain producers.

The commercial crops in countries like Ethiopia include markets for two types of crops;

perishables (fruits, vegetables, flowers, milk, egg etc) and cash crops (beverage, fibers, coffee,

cotton etc). Unlike in grain trading which becomes ready for final sale with only on-farm

processing, commercial crop trading requires relatively large scale processing. The structure of

such markets favors the emergence of integrated production with the disappearance of small-scale

producers. The market for most commercial crops is demand driven, i.e. it is derived from input

demand of processing industries. Moreover, relative to food crops, the demand for commercial

crops is elastic (Ibid).

The other sub sectors in which small scale farmers can engage in commercializing their endeavors

is livestock production. This includes markets for mainly sheep, goat, cattle, camel and poultry. In

most cases the farmer can control volume, timing and location of sale. For instance in most places

across Ethiopia there are formal livestock centers like slaughter houses in addition to the small

farmers who breed animals. However, because the length of the value chain for livestock is long

and the only point of integration for smallholder farmers is at the initial stage of live animal supply,

their control over the chain is minimal. Whereas much of the profit in the livestock sub sector

increase as one goes toward the end of the chain and at those points the smallholders’ command is

negligible and leaves them to exploitation. Moreover, the recurring droughts in the livestock

producing areas without any alternative source of water for pasture growth always puts significant

annual loss. This challenge is, therefore, another bottleneck for the commercializing the

smallholder herders on a sustainable basis.

What makes the future even gloomy is that even in countries where external constraints were

thought of being better than highly underdeveloped economies, Jari and Fraser (2009) revealed

from South Africa that less developed rural economies and smallholder farmers find it difficult to

participate in commercial markets due to a range of technical and institutional constraints. Factors

such as poor infrastructure, lack of market transport, dearth of market information, insufficient

expertise on grades and standards, inability to have contractual agreements and poor organizational

support have led to the inefficient use of markets, hence, commercialization bottlenecks. This

observation stresses technical and institutional bottlenecks as responsible for low market

participation of smallholder farmers.

11

Climate change induced shocks and stresses to which the vulnerability level of household is high

and their capacity to mitigate, adapt and transit is low will remain another area of challenge to

commercialize smallholders and integrate them into a market. In such circumstances, households

usually go for diversification as a means of risk averse. Especially in those agro ecologies where

access to irrigation is extremely low and the topography of the land is undulating, the conditions

are worse. The challenges that arise from climate variability and change are worse compared to

those discussed above in that it requires long term action to develop appropriate mitigation

measure and adaptation for building resilience (Gutu et al, 2012a and Gutu et al 2012b)

2.3.2 Future Prospects of Smallholder’s Commercialization

The future prospects of smallholder commercialization could differ by the enterprise engagements,

geophysical locations, and other internal and external factors. For instance dairying seems to be

bright because for the challenges so far indicated the government has been attempting to address

through polices and strategies. Thus, dairy farmers are on the way to getting accesses to services

and inputs that could help promote dairy production and productivity. This mainly include feed

and feeding, breeding services, credit extension, training veterinary services and appropriate

marketing system that address costumers demand. Since dairying is labor intensive, it promotes

the motto of government policy in creating employment opportunities at household level. This

improves employment, income and nutrition values of the family of the producers and the other

consumers. The dairy industry would address and serve as one of the major instrument of the

governments’ policy in achieving food security. This in turn promotes the production and

productivity to other sectors due to the attention given by the government (Zegaye, 2003).

The development of infrastructure like, transportation would help to change the traditional thinking

of selling the products on farm and losing much of the products to perishability. In the connection,

the Ethiopian government has been investing hugely under GTP I on rural road construction and

during the GTP II (2016-20) plan is set to connect all districts with all-weather roads. In response

to the increased need, and as part of the RSDP-IV, government embarked on a Universal Rural

Road Access Program (URRAP) that sets out to connect all peasant associations by roads of a

standard that provides all-weather, year round access, meets the needs of the rural communities,

which are affordable and maintainable,” the year 2016 is now almost four years since the URRAP

came to the picture with a vision of connecting all peasant association in the country to major all-

weather roads by 2014/15 in addition to interlinking each peasant association with gravel roads. A

little more than 71,500Km of rural road were planned to be constructed throughout the program

duration. Achieving this means reducing the burden of most rural communities dramatically by

enhancing the percentage of rural population with access to roads to 80% from only 30% at the

beginning of the programme (FDRE, 2016). This will enable smallholder farmers to get access to

road and transportation means for their product to the market. On the other side when the rural

farmers expose themselves to the market, their income will increase and be in position to buy non-

market food types in exchange and there by improve their living standard. Since the country is an

agrarian economy, grains, spices, dairying and other cash crops are much expected to be the major

targets of the prospective agro-processing industries in the country (Azage et al, 1998).

12

Another future prospect is the intervention by the government that has been done in recent years

through the development of small-scale irrigation schemes to encourage smallholder agricultural

commercialization. The evidence shows that farmers have started to grow crops which were not

previously grown in the area which has impacted their income in a positive way and transform to

a better farm typology. Households have started to incorporate vegetable farming as an integral

livelihood strategy. The fact that government has made irrigation scheme development as one of

its priority agenda, will allow many farmers across the country to sustainably produce profitable

enterprises (Yodit, 2013). Ethiopia has vast cultivable land estimated to 30 to 70 million hectares,

but only about a third of that is currently cultivated; approximately 15 million hectares, with

current irrigation schemes covering about 640,000 ha across the country. However, studies

estimates that total irrigable land potential in Ethiopia is 5.3 million hectares assuming use of

existing technologies, including 1.6 million hectares through rain water harvesting and ground

water. This means that there are potential opportunities to vastly increase the amount of irrigated

land and ensure smallholder farmers to make use of it. The available potentials rivers are Abay,

Tekeze, Omo-Ghibe, Rift valley, Awash, Genale-Dawa, Wabi-Shebele, Danakil, Ogaden and

Ayisha with a total potential of irrigating 3.7 million hectare of land out of which 10.5% are

directly for small and medium farmers. Under the GTP II (2016-20) the government has set up a

plan to construct several mega and medium scale irrigation schemes across the different regional

states. This is one of the prospects that can enable the commercialization of smallholders through

agricultural intensification (Seleshi et al, 2010).

Another area that lays the promise to increase smallholder commercialization that Ethiopia is in

the midst of a sustained growth surge that is becoming increasingly broad-based, building on major

improvements in educational attainment, improved health outcomes, and infrastructure capacity

in terms of access to power, and telecommunications. The Government’s Growth and

Transformation Plan sets ambitious targets for further improvements in these areas, together with

significant reforms aiming to improve trade logistics, by rolling-out the authorized economic

operator program across export-oriented industry parks and improving the main export corridor to

Djibouti. The industrialization push coincides with global trends that provide Ethiopia an

opportunity to integrate its economy into the modern “Made in the World” production system,

including by attracting labor-intensive production, which is leaving China and other East Asian

economies due to their rising wage rates. Ethiopia’s emerging capacities and global developments:

agriculture, mining, oil and gas, economic infrastructure, manufacturing, and selected services,

including health and tourism opens up another door for the commercialization endeavors (Henonk

et al, 2013).

A further strategic advantage of Ethiopia is its positions to attract a good share as regards to labor

costs. A recent World Bank study affirms that Ethiopia is already cost competitive with China in

manufacturing textile and garments and other labor-intensive light manufacturing industries (Dinh

et al., 2012). Meanwhile, Ethiopia is centrally located globally, within non-stop transport distance

to all major markets, roughly equidistant between the United States and Japan, between China and

Brazil, between Europe’s largest economy and India, and between Russia and South Africa. This

13

creates a favorable trade environment for the production of high value crops and staple foods meant

for sell by smallholders and larger agricultural firms.

Finally, trade logistics reforms promise to dramatically shrink the effective distance between

Ethiopia and global markets. Addis Ababa is already the main air hub for Africa and the home of

Ethiopian Airlines, which carries two thirds of Africa’s air freight and has just significantly

extended its cargo capacity and range. The infrastructure program now underway is integrating the

country’s internal economy (Lakshmanan, 2011). For the internal market, this is beginning to

accomplish for Ethiopia (Shiferaw et al., 2012) what the construction of the interstate highway

network in the 1950s and 1960s did for the United States and the rail and road program in the

2000s did for China (Faber, 2012). Meanwhile, Ethiopia’s connections to global markets are being

significantly upgraded with new, high-speed rail and road corridors under construction. For

international trade, this will position Ethiopian agricultural commodity supply to consumers and

agro-processing industries to fully modern seaport facilities than Munich is to Rotterdam, on a

trade route accounting for 30% of global container traffic and connecting East, South, and West

Asia to Europe and the Americas, a position that has historically been a natural advantage for

Ethiopia.

2.4 Commercialization and Progress Out of Poverty

According to Geoffrey et al (2015) rampant poverty and food insecurity among rural farming

households in developing countries have been linked to poor performance of the agricultural

sector. In Kenya, for example, statistics show those rural households who mainly depend on

agriculture, are the poorest and most food insecure in the country. Majority of these households

are smallholder farmers and account for about 75% of the total agricultural output and 70% of

marketed agricultural produce in the country. However, empirical evidence shows that market

participation through agricultural output is much skewed where 20% of smallholder households

account for over two thirds of the marketed volumes.

Similarly OECD (2010) and WB (2007) present that agricultural development has potential to

generate growth by two to three times than non-agricultural sector developments, especially for

the bottom quartile of poor people in SSA. Hence, the agricultural sector developments have

stronger poverty reducing ability than non-agricultural sector development at least in the short to

medium time. Interestingly, the decline in poverty rate of developing countries from 28% to 22%

in 2002 is mainly attributed to falling poverty in rural areas and 80% of the decline in rural areas

is related exclusively to favorable conditions in these areas. Cognizant to this, Millennium

Development Project’s Hunger Task Force concluded in 2005 that “the world could meet the

Millennium Development Goal (MDG) of halving hunger by 2015”, and development of

agriculture is silver bullet for almost all African countries to achieve the goal (WB, 2007). More

specifically, as most farmers in developing countries (above 85%) farm on less than 2 hectares of

land and the possibility of increasing holding size is unthinkable, improving productivity of

smallholders will be the catalyst for achievement of growth (Tekalegn et al, 2014 quoted from

Tesfaye et al., 2012).

(WB, 2010) argue that the contribution of smallholder farms as the engine of rural growth and

livelihoods improvement, however, depends on their level of transformation from subsistence

oriented to market oriented production systems. Evidences from different countries like Tanzania,

14

Uganda and Vietnam conclude the same by using smallholder commercialization as tools to

climbing out of poverty and get successes. The results from impact assessment by Geoffrey et al,

(2015) showed that agricultural commercialization significantly reduces food insecurity and

poverty among commercialized when compared against non-commercialized households.

In Ethiopia smallholder farmers who operate farm are mainly cereals growers for both own-

consumption and sales on less than 2 hectares per household, albeit physically small when seen

separately, as a group covers 96% of total area covered by crop and contribute 97 % of total crops

produced (96.8% of grain crops, out of which 97.4%, 98.6%, 81.3% are cereals, pulses and oil

seeds in the same order); 76.3%, 90.9%, 80.6%, 80.9%, 22% and 85.7% are vegetables, root crops,

fruits, coffee, sugarcane and other cash crops respectively) during the year 2009/10 (Alemayehu

et al., 2011 and MoFED, 2010).

It is in response to these facts that the GoE has prioritized commercialization of farms in general

and smallholder agriculture in particular. In its second Poverty Reduction Strategy Plan, PASDEP

set for the time span 2005/06 to 2009/10, the GoE gave high consideration for commercialization

of agriculture including a shift to higher-valued crops; promoting niche high-value export crops, a

focus on selected high-potential areas, facilitating the commercialization of agriculture, supporting

the development of large scale commercial agriculture where it is feasible and better integrating

farmers with markets both locally and globally (Havnevik et al., 2006 and MoFED, 2006). As a

result the nation recorded encouraging growth during the project life.

All the above body of literature presents the role agricultural commercialization can play in

reducing poverty and improving household welfare, whereas the study conducted by Amsalu

(2014) on the impact of smallholder farmers commercialization on rural poverty in Jimma zone of

south west Ethiopia indicate that the commercialization of smallholder farmer had no effect on

poverty level of the households. Rather the result indicated that sex, age, educational levels, family

size, farm income, access to credit in previous years, and distance from settlement center to the

nearest market places were significant determinants of rural households’ poverty.

Moreover, theoretical arguments against agricultural commercialization contend that it even

contributes to poverty and food insecurity (Pingali and Rosegrant, 1995; Pingali 1997; Strasberg

et al., 1999). They argue that commercializing smallholder agriculture entails loss of capacity to

produce food and loss of food productivity on the basis that farmers will drop food crop production

in favor of purely cash crop production. This will in turn expose households to increased risks

usually associated with market price fluctuations that are normally of little concern in subsistence

production settings. In addition, it is argued that commercialized farmers face increased risks

associated with yield fluctuation when production becomes more specialized thereby loosing

advantages associated with production diversification. Given the risky economic environment

under which smallholder farmers in developing countries operate, ensuring own food supplies can

therefore be economically first best strategy. In this context, commercializing smallholder

production is likely to negatively affect food crop production and general household welfare due

to lack of reliable and efficient food markets (Strasberg et al., 1999). This school of thought also

argues that commercial agriculture can lead to overuse of fertilizers, pesticides and land

degradation due to increased production intensification thereby affecting the environment

negatively.

15

Similarly in terms of the theories that under pine smallholder commercialization and profit

maximization, Fro¨hlich et al (2013) put forward that increased commercialization of smallholder

agriculture can have adverse effects; for example, highly specialized farm households are by

definition more dependent on the market than subsistence-oriented households, exposing them to

fluctuations in market prices, while more subsistence-oriented households are less affected.

Furthermore, economies of scale and scope, plus market risk, dictate that farmers with small farms

are somewhat disadvantaged, simply because the transactions costs incurred by market

participation are fixed to a significant extent. For example, obtaining a small as opposed to a large

loan may carry the same transaction costs in terms of the loan application and repayment processes.

In addition, risk preferences differ between socio-economic strata. As an example, the analysis by

these writers found that poor individuals and women are more risk averse than others, and this may

inhibit specialization and investments and is often associated with a low demand for credit.

In countries like Ethiopia where the topography is mountainous in the highland and midland agro-

climates, agricultural commercialization could lead to deforestation, the occurrence of floods and

droughts, rivers being poisoned with agrochemicals, and farmers being laden with debts (Forsyth

and Walker 2008). In that regard countries like Thailand have passed resolution in 1998 stating

that communities located in certain conservation areas – which almost entirely refers to upland

communities – must be strictly contained within demarcated residential and agricultural areas and

must focus on subsistence production (Forsyth and Walker 2008).

In response to these latter arguments of the non-pro-poorness of smallholder commercialization,

von Braun (1995) and Govereh et al., (1999) assert that the theory that agricultural

commercialization is not pro-poor has been countered. They argued that the perception that

agricultural commercialization in developing countries undermines food security is “overly

simplistic” and based on “if” statements. Example of such “if” statements include:- if food crops

are replaced with non-food crops, and if markets are not working well; if landless farm laborers

are replaced with highly mechanized and less labour intensive production systems. As such, von

Braun (1995) concludes that many adverse effects of commercialization are not because of the

inherent nature of commercialization, but instead, it is because of bad policies. The answer to these

bad policies is policy reforms and not reversal or deceleration of technological advancement and

commercialization.

In general there has been considerable debate among policymakers and academics on as to whether

the commercialization of smallholders is a change for the better. Some policy documents have

attributed social problems and economic instability to the excessive influence of market.

Therefore, given the scanty of literature reviewed above and the several other dozens that linked

poverty and smallholder commercialization, it is very difficult to conclude that there is a strong

positive relationship between the two. While several studies have indicated that smallholder

commercialization improves the welfare and reduce rural poverty, still others assert that there is

either no relationship or even the relationship is negative.

2.5 Empirical reviews

Jennifer and Tina (2014) examined the relationship between agricultural commercialization and

nutrition. They developed two indices one for food crops produced and the other for cash crops

16

produced. Methodologically, Ordinary Least Squares (OLS) regression was conducted to test the

associations between agricultural commercialization and dietary diversity, production diversity,

and other predictors of dietary diversity while controlling for non-agricultural income and other

possible confounders. Additional they run logistic regressions to predict the odds of the

consumption of specific food groups, including dummy variables for whether the food group was

produced and metrics of agricultural income quartile, non-agricultural income, and whether any

amount was sold. Their finding indicated that smallholder commercialization in Ethiopia has a

significant and positive relationship to household-level dietary quality.

Ele et al (2014) conducted an assessment of the extent of commercialization of smallholder

households in cross river state of Nigeria. The study was conducted to examine the variation in

the level of commercialization among households in three agricultural zones, as well as identify

the micro-level factors determining the level of commercialization. The study used a survey of 120

HH with the application of household commercialization index (HCI). Their findings revealed that

the degree of commercialization in the study area was moderately high (about 60.40%). On

average, households sold about 56.10%, 66.60% and 58.50% of their total production (in grain

equivalent terms) for the Southern, Central and Northern zones respectively. The Tobit regression

analysis showed that total quantity of food crops produced, farming experience, access to

agricultural extension service, size of land used for cultivation, membership in cooperatives and

household family size were important factors determining the level of commercialization of

smallholder farms.

Samuel and Kay (2008) conducted study on the commercialization of smallholder agriculture in

selected ‘Teff’-growing areas of Ethiopia using a sample of 155 households in 4 woredas. The

objective of their research were to assess the scale of commercialization in teff-growing areas, and

to detect household and farm characteristics which might explain variation in the level of market

participation, commercialization level among households and welfare situation. The method of

analysis was descriptive for measurement of the level of commercialization. Their finding

indicates that the level of commercialization is such that a slight majority (about 58%) consumed

more than they marketed, while 38% sold more than they consumed and the remaining 4%

consumed and marketed an equal proportion of their output. Farmers operating at full commercial

level (i.e. those who sold 100% of their production) constitute 5%, while another 7% operated at

full subsistence level. The finding from the regression result showed that about 63% of the

variation in trade was explained by the volume of production, keeping other factors constant.

Hence, land size, technology and access to service which determines the volume of production are

important factors of commercialization level.

Aman et al (2013) have undertaken the analysis of determinants of smallholder commercialization

of horticultural crops in Gemechis District of West Hararghe Zone in Ethiopia using as ample

survey of 160 horticulture growers. A double hurdle model was applied to analyze the

determinants of the commercialization decision and level of commercialization. Their first hurdle

result from Probit regression model revealed that, gender, distance to the nearest market, and

cultivated land played a significant role in smallholder commercialization decision. In the second

hurdle, the result of Truncated Regression Model revealed that, household education, household

17

size, access to irrigation, cultivated land, livestock holding, and distance to the nearest market were

the key determinants of the level of commercialization.

The work by Chanyalew et al (2011) on factors determining the degree of commercialization of

smallholder growing potato in Kombolcha district of East Hararghe in Ethiopia used a survey of

133 randomly selected potato growers from a purposively selected peasant association. Using and

OLS method for the analysis of quantitative data, they found out that farm size allocated to potato,

access to irrigation and access to market information were found to be significant in affecting

extent of market participation (degree of commercialization).

2.8 Conclusion from Literature review

From the above reviews, it is evident that numerous studies have been done on market participation

and commercialization of smallholder farmers. Methodologically, current empirical studies on

market participation typically adopt two-step analytical approaches. The Heckman and the Double

Hurdle Models have been extensively used. The review also showed that the underlying theory of

market participation is derived from the Smithian and Ricardian theories of trade. In general there

is no limitation in the availability of literature around smallholder commercialization from all over

the developing world. In most cases the bulk of publications are from researchers, and

academicians. The question that still remains unanswered is how much have all the results of these

dozens of research have informed national polices, strategies, intervention packages and made

contribution in changing the lives of smallholder farmers.

3. METHODOLOGY

3.1 The Study Location

The study area is North Shewa Zone of Oromia national regional state. North Shewa Zone is found

in north-west direction of Addis Ababa. Fiche town which is located at 147km away from Addis

Ababa is the capital of the zone. The zone has 13 rural districts with a total land area of 10,323

km2. It is situated between 9030N and 38040E. The zone is bordered by Amahara region in the

north and the east, West Shewa zone in the west and Addis Ababa in the south. The topography of

the area is mountainous in the highland and midland, while it is plain in the lowland areas. The

altitude of the area ranges between 1300-2700 meters above sea level. It is divided into three agro-

ecologies, namely, 15% highland (>2500 meter above sea level), 40% midland (1500-2500 meter

above sea level) and 45% lowland (500 -1500meter above sea level) (CSA, 2007). The area gets

rainfall during both Belg (February to April) and Meher (June to September) seasons. The average

annual rainfall of the area ranges from less than 840 mm to 1600 mm while the mean annual

temperature varies between 150C and 190C.

The population of the zone is estimated to be 1,431,305 with population density of 138.7 persons

per km2 and average of 4.6 persons per household. The community practices mixed farming of

cereal crops, pulses and oil crops. Livestock production also constitutes an important part of

agricultural activities. The average land holding is 1.1 hectare per household. Due to the

continuous reduction of farmland to degradation by frequent flooding and drought, farming was

intruded into steep sloping areas, forest lands and expanded to marginal lands and communal lands

covering 81% of the total area of the zone. Only 3% of the total land is put under grazing, 3.7%

forest land, 11.33% degraded and bare land and 0.65% is other form of land (CSA, 2007). The

crops, livestock and other livelihoods of the community are subjected to damage to climate change

18

induced hazards. This coupled with the continually decreasing farm size had serious impact

threatening farmers’ adaptive capacity and livelihood improvements

3.2 Source and Types of Data

The data for the research was obtained from a survey of 453 farm households in three districts of

the Zone. A multi stage random sampling technique was used to select the ultimate respondents.

In the first place, three districts were randomly selected. These districts ware Yaya Gullele, Hidha

Abote and Derra. In the second stage, peasant associations from each districts were randomly

selected, consequently, 18 peasant associations were selected for representation. Finally

systematic random sampling was used to select the respondents based on proportional to

population size. A structured questionnaire was used to interview the farmers. Data collected from

the farmers include household characteristics, landholding, resource ownership, access to

extension services, credit access, types crops and livestock production, market participation,

volume of products taken to the market, access to road, disaster occurrence, climate variables

(precipitation, temperature, soil moisture, air moisture and wind direction), vulnerability

conditions, adaptation strategies, coping strategies, level of resilience, and other relevant

information.

In addition, secondary data relevant for this analysis was obtained from the National

Meteorological Service Agency (NMSA), Central Statistical Authority (CSA), and Zonal and

district agricultural offices. In order to understand the research questions at community level,

qualitative data were collected through focused group discussion using checklist prepared for the

purpose. More specifically, visit was made to the study site during the 2015/16 drought situation

to see households level of participation in a market and observe market operation. Several FGD

were conducted to triangulate the information before the crises and after the crises.

3.3 Method of Data Analysis

3.3.1 Conceptual framework and Methods of measuring degree of commercialization

Commercialization of agriculture takes many forms and is defined in different ways. Generally,

smallholder commercialization in agriculture can be defined in terms of smallholder participation

in commercial input and output markets, type of crops grown by smallholder farmers and goals of

smallholder farmers. This variety of meaning emerges from the way the researchers perceive the

concept. However, the core of most definitions of agricultural commercialization is the degree of

participation in the (output) market, with the focus being too much on cash incomes (Strasberg et

al., 1999; von Braun, 2005). According to these authors, commercialization is supplying higher

amount or percentage of surplus product to market. But, the meaning of commercialization goes

beyond supplying surplus products to markets; and it has to consider both the input and output

sides of production, and the decision-making behavior of farm households in production and

marketing simultaneously (Pingali, 1997; von Braun et al., 1994). Moreover, commercialization

is not restricted only to cash crops as traditional food crops are also frequently marketed to a

considerable extent (Berhanu et al., 2006; von Braun et al., 1994).

A line of thought followed in this study is that, generally agricultural commercialization is the

integration of farmers into input and output markets. Therefore we follow the definition by

Gebremedhin and Jaleta, (2010) i.e. produce offered for sale and use of purchased inputs in the

production process. However, the later component of this definition (use of purchased inputs) is

19

beyond the scope of this study and secondly as illustrated by Pingali (1997), commercialization on

the input side is likely to proceed in tandem with the degree of participation in output markets.

Based on this adopted definition, a more comprehensive household commercialization index (HCI)

that incorporates all crop enterprises on the farm was developed as opposed to some of the past

empirical studies that focused on the output side of one or a few selected crop enterprises,

especially for cash crops only. Therefore, the comprehensive HCI that was developed gives a more

accurate picture of smallholder agricultural output commercialization thereby enabling a more in-

depth understanding of agricultural transformation process than before.

3.3.2 Mathematical specifications

Degree of commercialization: Household Commercialization Index (HCI)

Finally, to analyze the commercialization level of households, household agricultural output

marketed index is used as proxy of degree of commercialization. The index is measured by the

proportion of the value of agricultural sales to total value of agricultural production.

Mathematically it follows:

𝐶𝑂𝑀𝑃𝑖 =∑ 𝑃𝑘𝑆𝑖𝑘

𝐾𝑘=1

∑ 𝑃𝑘𝑄𝑖𝑘𝐾𝑘=1

∗ 100 (1)

Where 𝑆𝑖𝑘 is quantity of output 𝑘 sold by household 𝑖 evaluated at an average community level

price (𝑃𝑘), 𝑄𝑖𝑘 is total quantity of output k produced by household 𝑖. After calculating this index

households were categorized into different groups based on their level of commercialization and

this helped to classify farmers as subsistence, semi-commercial and commercial based on market

orientation. The main purpose of subsistence system is to maintain household food self-

sufficiency. The semi-commercial system is focused towards generation of marketable surplus and

maintaining household food-security. In commercial system, profit maximization is the main

motive of the entrepreneur.

Determinants of degree of commercialization

Based on the exercise of most studies that have modeled agricultural commercialization as a two-

step analytical approach involving the unobservable decision to commercialize and the observed

degree or extent of commercialization, Tobit regression model, with a hybrid of the discrete and

continuous dependent variables was used to draw inferences on the causal factors for

commercialization of households. The first step is a discrete outcome of participating in the market

or otherwise. This is because from the household response to the question of as to whether they

participate in the product market, their responses were ‘yes’ or ‘no’. For the HHs with a ‘no’

response the HCI yield a zero value. Therefore, this group does not need to involve in the second

layer of analysis, hence sample selection is posed. The second level then involves the

determination of the level of commercialization. The level of commercialization was made

continuous rather than discrete by being censored at zero. In this data set, considerable percentage

of households has value of 0 for the dependent variable, as they did not participate in the product

market. In such a data set, the use of OLS is inappropriate. An appropriate alternative for this type

of data set is Tobit. Tobit model was originally developed to deal with corner solution outcome;

however, it can be used to estimate models of both cases; censored and corner solution

(Wooldridge, 2009). In this connection, Tobit model for determinants of level of

commercialization is given as:

20

𝐶𝑙𝑖∗ = 𝑋𝐽

′𝛽 + 𝑈𝑗 (2)

𝐶𝑙 = 𝑀𝑎𝑥(0, 𝐶𝑙∗) (3)

The observed variable 𝐶𝑙 equals 𝐶𝑙𝑖∗ when 𝐶𝑙𝑖

∗ >0, but 𝐶𝑙 = 0 when 𝐶𝑙𝑖∗ <0. That is:

𝐶𝑙 = {

0 𝑖𝑓 𝐶𝑙𝑖∗ ≤ 0

𝐶𝑙𝑖∗ 𝑖𝑓 𝐶𝑙𝑖

∗ > 0 (4)

Where, 𝑋 is 𝐾 vector of regressors which included household characteristics (age, sex, educational

level), land size, labor, livestock ownership, extension services, credit services, income level,

diversity of income sources, availability of perennial crops, agricultural logistics (market access,

access to all weather road, market information, communication technology such as radio and

mobile phone), entrepreneurial training, area under irrigation, technology (improved seed,

fertilizer), crop diversification, vulnerability to climate change (CC) shocks and stresses, level of

adaptation to climate change/variability (indexed), agro-climatic zone and perception of CC were

entered into the model, 𝐶𝑙𝑖∗ is the dependent variable, which in this case is degree of

commercialization. 𝛽s are parameters to be estimated and 𝑈𝑗 is household specific disturbance

term.

Impact of commercialization on HH poverty

In order to determine the relationship between poverty and level of smallholders’ agricultural

commercialization, binary logistic regression model was used. The reason why binary logistic

regression was selected for this study over the other models is that, it has some advantage over the

others in the analysis of dichotomous or binary outcome variable. These include Logit analysis

produces statistically sound result, the independent variable and dependent variable don't have to

be normally distributed, and it provides results which can be easily interpreted. Moreover, the

results is comparable with that of probit model; the main difference is the logistic function has

slight flatter tails that is, the normal curve under logit function approaches the axes more quickly

than in the case of probit function. Ignoring minor differences pointed out, the probit and logit

model are quite similar. Hence binary Logistic regression is taken as a useful way of describing

the relationship between one or more independent variables and a binary response variable,

expressed as a probability, which has only two values. The dependent variable in this study is

dummy variable (binary), which takes the value 1 for poor or 0 otherwise. The mode specification

is given as:

𝑃(Y = 1|𝑋) =𝑒𝑋′𝛽

1+𝑒𝑋′𝛽 (5)

= ˄(𝑿′𝜷) (6)

𝐸(𝑌|𝑋) = 0[1 − ˄(X′𝛽)] + 1[˄(X′𝛽)] = ˄(X′𝛽) (7)

The Odds-ration is given by

ℒ =𝑃(𝑌=1|𝑋)

1−𝑃(𝑌=1|𝑋)=

𝑒𝑋′𝛽

1+𝑒⁄ 𝑋′𝛽

1−(𝑒𝑋′𝛽1+𝑒⁄ 𝑋′𝛽)

= 𝑒𝑋′𝛽 (8)

21

Where 𝑃 is the probability that a household is poor or otherwise following consumption poverty

approach. That is the binary variable, 𝑃 = 1 is for poor household and 𝑃 =0 is for the non-poor

ones. 𝑋 is the different demographic, social, economic, natural and other variables assumed to

determine the poverty level. In here in order to measure the impact of smallholder

commercialization, HCI is used as one of the independent variables. 𝛽 are parameters to be

estimated using the maximum likelihood method. ℒ is the log odds ration that measure the

probability of being poor over being non-poor. It measures the impact of each covariate on being

poor over non-poor.

3.3.3 Mathematical specifications

In the above model 𝑌, which is being poor or otherwise is however, should be determined based

on appropriate theoretical foundation. In the study area based on the consumption behavior and

family sizes, and other basic social expenditure, a cutoff point was determined by Gutu et al (2013)

for the same households using the same data set following the latest definition of food security by

FAO (2011), which states that the minimum amount of food basket a household has to get access

to should enable to meet the minimum calories of energy per day for an active and healthy life.

The minimum amount of basket of food is usually computed from the locally available food types

consumed as well as produced by farmers (FAO, 2002). From these arguments, it is apparent that

the minimum amount of food and non-food items for community members residing in the study

are should be computed based on the food preference and dietary need described in Annex 2. For

the food component, this minimum requirement is based on the amount of minimum kilo calorie

energy requirement and the other expenditure required is calculated to enable a typical household

to be above a consumption poverty line. As written by, Adelman and Berck (1991), African

Leadership Forum (1989), Alamgir and Arora (1991) and FAO (2002), achievement of food

security converges the achievement of this minimum calories requirement in a sustainable bases

under any circumstance of natural and manmade disturbances of livelihood.

In Ethiopia, several people have used different figures, but for the purpose of this research, the

minimum calorie taken is 2300 Kcal per day for adult equivalent as suggested by FAO (2011) for

developing countries. The next step is then to determine the type and proportion of food types

required by an average family in the area. Then household expenditure requirements for health,

education, clothing, shelter and other social obligations will be added to construct the minimum

amount of income required for an average family to be above poverty line. Annex 2 presents this

amount of income needed for all HH expenditure. The average family size of the respondent was

4 adults equivalent and the same is used to establish the poverty line by calculating the total

consumption expenditure for a typical household throughout the year. From Annex 2 it is apparent

that each household need to generate Birr 29,094.712 (twenty nine thousand, ninety four and

seventy one cents) as net farm income that can meet the present need. Therefore, this is a cutoff

point, where households who are unable to meet this amount were classified as poor and

households who were able to meet as non-poor.

4. FINDINGS

4.1 Market Participation and Degree of Commercialization

The economy of the community in the study area is mainly subsistence farming. The community

practices mixed farming of crop production and livestock rearing. The average land holding is 1.1 2 This amount is equivalent to USD 1,353.24 at an exchange rate of 1USD = 21.5 ETB as of May 2016.

22

hectare per household. Cereal crops, pulses and oil crops are the dominant grown in the area. These

include teff, sorghum, millet, oats, barley and wheat. Besides, vegetables such as onion, potato,

green pepper and cabbage are grown only in few peasant associations where irrigation water is

available. Vegetables are relatively less prevalent in the food basket consumed and primarily

produced to be used as a source of cash for the households to meet extra cash needs for children’s

school fee, medical expenses, and other household social obligations. Due to the continually

decreasing farm size livestock holding has become is very small per household, yet it still

constitutes an important part in agriculture system.

It is apparent that staple food crops and livestock are the prime agricultural outputs with which

smallholders participate in the market. Given the fact that staple food market is characterized by

many small sellers, competition among farmers is likely to be fierce. This problem arises mainly

due to low per capita production as confirmed by small land holding per household and with only

few farmers having access to irrigation for small proportion of their farmland. These could not

allow the smallholders take part in output markets as required. Among those who do take part, the

degree of participation also varies. This section investigates the microeconomic relationships

between market participation (on-participation) and household-level factors, using the household

survey data and assuming the macroeconomic conditions are constant.

Large majority of those smallholders who take part in the output markets is out of necessity (to

obtain cash for the purchase of essential consumption goods and agricultural inputs), whereas only

very small proportion of them takes part either to capture the gains from specialization or that is

the only means of existence. As it is rare to find a farmer who is not influenced by either of these

factors, it is unusual to observe farmers who do not market any of their output. This circumstance

happens in the study area where a farmer has either nothing to sell or his/her products could not

go beyond household consumption. For those farmers the household’s cash needs are basically

met from non-farm income including remittances and aid. Table 1 presents the output market

participation, while table 2 presents the degree of participation.

Table 1. Smallholder farmers’ participation in output market

Participation in product market %

No 13%

Yes 87%

Total 100%

Source: Computed from HH survey data

Table 2. Degree of smallholders’ commercialization in the output market

Level of Commercialization Percentage

No participation in the output market at all 13%

Supply less than 25% of their produce 57%

Supplying 25 - 50% of their produce 10%

23

Source: Computed from HH survey data

The statistical result shows that nearly 13% of the farmers are not bringing anything to the product

market, while at the other extreme only 3% is making the entire of his/her product meant for the

market. That is to say only a maximum of 3% has been fully commercialized after series of

decades’ effort. The large majority as 80% brings less than 50% of their products to market and

out of this; even 57% is supplying less than 25% of their products. Given the fact that these famers

are at a near distance to the nation’s capital city, Addis Ababa and with relatively better

infrastructure, by understanding the factors that is leading them to stay in agriculture but not taking

part in output markets should enable policy makers to design programmes either to strengthen

farming livelihoods or to facilitate the smooth withdrawal of marginal farmers from the

agricultural sector, thus allowing more productive farmers to cultivate larger farms. Hence, it is

important to study as to why smallholders have not been well integrated into the output markets

as sellers. The cross tabulation with non-farm engagement indicates that the reason for lower level

of commercialization, at least for cash source in not primary because their occupations were non-

agricultural, but rather because their agricultural livelihood is precarious.

With regard to the financial value of the agricultural products sold in a market for those

participating in the product market it ranges from Ethiopian birr 250 (USD 11.63) per year to a

maximum of birr 9051 (USD 421), with an average of Ethiopian birr 2,237 (USD 1043). This is a

clear indication that market participation is rather to meet certain financial constraints of household

instead of specialization and profit driven. Considering commercialized farmers as those offering

more than 50% of their product into the market, figure 2 presents comparison of key socio-

economic variables assumed to determine household’s livelihood among the commercialized and

their counterparts.

3 Exchange rate 1USD = 21.5 Ethiopian birr at the time of the study

Supply 50 -75% of their produce 9%

Supply more than 75% of their produce 11%

Total 100%

100% Market oriented 3%

24

Figure 1. Comparison of commercialized and semi-commercialized farmers with regard to key variables.

Sources: Computed from HH survey data

Except for the number of years of farming experience, the farmers said of being commercialized

has exhibited better in terms of access to extension services, size of land holding, number of farm

plots, area under irrigation, access to credit, access to improved seed, diversity of enterprises,

saving, livestock holding, total value of farm earning and engagement in non-farm activities. The

probable reason for farmers with more year of farming reserved from being commercialized could

be that, they prioritized risk minimization as opposed to maximizing market earning which need

risk taking behavior. Even if differences appear to exist for those key variables, it is observed from

figure 1 that these differences are not magnificent. This is a clear indication of the level of

commercialization among smallholders.

4.2 Determinants for Market Participation and Degree of Commercialization

In areas like that of the study location, where the marketing system and facilities are yet to be

improved, it is logical to assume that smallholders’ participation in market would be very low. In

this regard the actions and interactions of many factors will be at the play. That is a smallholder’s

decision to enter and make use of markets is influenced by macro and micro-level factors. Macro-

economic and trade policies, market reform, rural infrastructure improvement, climatic conditions

and the development of institutions are those over which a smallholder can have no or influence

at all. Table 3 presents the regression result for the determinant factors.

-5

0

5

10

15

20

25

30

Commercialized Non-commercialized

25

Table 3. Two step censored regression model output

Variables

Market Participation Commercialization Intensity

Marginal Effect St. Error Coefficient St. Error

Demographic and Social Characteristics

Sex (Male =1) -1.3450** 0.6072 -0.0038 0.0531

Participation in Local institutions 0.3925*** 0.1509 0.0016 0.0174

Economic and Financial

Size of cultivable land 0.0113 0.0256 0.0075*** 0.0027

Total HH income - 2.27E-07 1.90E-06 - 02.7E-07** 1.11E-07

Level of diversity of HH

livelihoods

0.1598** 0.0724 0.0201*** 0.0063

Total volume of annual

production

0.0335** 0.0167 0.0138*** 0.0027

Natural, Agro-Climatic and Climate Change

Midland agro-ecology 0.2208 0.4417 0.1301*** 0.0484

Lowland Agro-ecology 1.5608*** 0.5468 0.2525*** 0.0537

Level of land fertility 0.0132 0.1699 0.0398** 0.0165

Proportion of land under

conservation

0.2924 0.4823 0.1055** 0.0489

Distance between farm plots - 0.4222** 0.2149 - 0.0267 0.0293

Level CC Perception (rainfall,

temperature, induced shocks and

stresses)

0.3687 0.678 0.1624** 0.0762

Agricultural Logistics and Facilities

Access to market information 0.5394 0.3748 0.0953*** 0.0365

Distance from the market place -0.3928 0.229 -0.0697*** 0.0259

Ownership of TV 1.5134* 0.8568 0.0129 0.1129

Const. 0.0031 0.1490 -0.2888 0.2952

Sigma Cons 0.2983

***, **, * significant at 1%, 5% and 10% probability levels respectively

Source: Model output for Tobit double hurdles

Demographic and Social factors

In rural setting where smallholder agriculture is mainly for substance requirement and as the

amount of produce potentially taken to the market is significantly small, it is usually the women

who play much role in participating in rural markers. Especially when the household is headed by

women, rural women participation in a market is a key activity for achieving the household’s

economic and social needs. In many of the rural market, vegetables produces, which is used as one

of the means of meeting immediate cash needs for households in the central part of Ethiopia, is

done by petty traders and retailers supplying such product from their own farm; where such

suppliers are largely the women. Moreover, a noteworthy exception, highlighted in this finding is

that the products of women headed household are mainly those crops that are grown around

homesteads. The main reason for women’s high market participation through selling crop products

as compared to the male headed ones is because of their lack of storage capacity. The econometric

result from this study affirms to this argument by indicating that market participation is in favor

26

of women headed household with a coefficient of marginal effect significant at 5% probability

level.

Another important factors common to the study area is the existence of ranges of local institutions

established by the community themselves. Some institutions are made up of a well-defined group

of people (who either chose to become members or were “born members”) and have clear,

exclusive criteria for membership. Others are more inclusive, often because they dictate how

people in general should behave rather than what particular people should do. In here the

engagement in such social institutions is a measure of social networks which helps to build a sense

of belongingness. In the study area types of networks that are important include families, friends

and community organizations. These groups provide strong bonds within a social group; a sense

of belonging, identity and social support; and strong linkages to others outside group that can bring

in additional social, financial or political resources. Successful and enduring local institutions

create relationships with a common purpose and promote shared interests, but can also have

adaptable and flexible functions. They can provide emotional and practical support, information

and resource sharing. Some of the semi-formal local institutions include, Idir, Mahiber, Iqub,

Senebte, Debo, etc. The participation in such local institutions is a strong determinant of

household’s access to required supports, and information (including market information). This has

a great help in enabling someone to participate in the market, as participation requires social,

economic and technological (price information) services. From the double hurdle model result the

density of participation in local institution is found to be an important factor for market

participation with a coefficient of marginal effect 0.3925 significant at 5% probability level.

Economic Factors

One of the key driving factors believed to have significant impact on the participation and degree

of agricultural commercialization is economic resources. The inclusion of these variables was

driven by the theory of asset traps advanced by Carter and Barrett (2006) who argue that lack of

assets may preclude many smallholder farmers from being able to produce a surplus necessary for

participating in output markets as sellers. Several physical and financial asset variables were

included in the model, however only size of land holding and total amount of household income

(including non-farm, remittance, etc) were found to be significant determinant of level of

smallholder commercialization intensity. Similarly the intensity of livelihood diversity and total

volume of farm products) appeared to significantly influence both market participation and level

of commercialization.

The coefficients of regression coefficient for size of land holding and total household income

explaining the degree of commercialization are 0.0075 and 1.7E-07 respectively and both were

significant at 5% probability levels. Size of land holding is an important and is the starting point

to progress on the scale of agricultural commercialization. As the size of land increases, the

tendency to be market oriented, production specialization, use economy of scale and supply in

bulk increases. Moreover, the availability of big size of land enables famers to get access to other

services like credit, procure technology, and develop the capacity to bargain. This means that

within-household asset endowments, better per capita of total farm size owned is positively and

significantly related to commercialization intensity. In other words households whose per capita

owned farm sizes is relatively big are likely to be commercialized and also more intensively

commercialized over time compared to those whose per capita farm sizes owned is small. The

27

result can be interpreted as an increase in per capita farm size by 1 ha is likely to increase the

commercialization intensity by about 0.75%. The implication of this finding is can be that

households with a bigger farm size are likely to diversify their production into cash and have a

higher probability of producing more food crops beyond their subsistence consumption. In fact,

according to report of IFPRI by Chapoto et al., (2013) and Jayne and Muyanga (2012), most of

the agricultural production increases in Africa has been as a result of area expansion and not

productivity growth. Empirical work in south Asia by Sharma et al., (2012) also found out that

one of the major constraints faced by smallholder farmers in responding to market driven

commercialization opportunities in the region included small and fragmentation of land holdings.

Similarly, the level of income a household generate which is also linked to the size of farm in part

is an important factor determining the degree of commercialization. Households with higher level

of income tend to be less commercialized; this could be because much of the income was from

non-farm, off-farm, remittances and aid as compared to the farm generated income.

Moreover, the intensity of livelihoods diversity and total volume of farm product yielded

coefficients of 0.0201 and 0.018 respectively and were found significant at all conventional

probability level in determining the degree of commercialization. These same variables had also

an impact on the market participation decision; where livelihoods diversification intensity has a

coefficient of 0.158 and volume of farm produce 0.0335, both being significant at 5% probability

levels. The study area being located to highly vulnerable to perfect competitive price and climatic

shocks, the justification for the significance of these two variables could be that when households

have a diversified livelihood options, they will have diverse choices of product to offer to the

market. Even if one of the enterprises face challenge either due to price fall or climate change

induced shocks, households could still rely on the other enterprises to participate in a market and

meet critical cash needs. Similarly the volume of product is critical in allowing households to

participate in a market as well as level of participation. This is because HHs are largely subsistence

oriented and whatever is taken to the market is always what is in excess of household consumption.

This is in line with the above findings that HH are less profit oriented and are more tilted toward

risk aversion through enterprise diversification.

Natural and Agro-climatic zone

Households in the lowland and midland agro-climatic zones compared to highland benefits largely

by growing crops that can be marketed because the land receives sediments and other soil nutrient

components coming from the highlands by floods. This has resulted in a positive impact on

farmer’s income where their living standards have changed through time. Due to the flooding of

the lowland catchment, farmers also benefit from production of verities of crops, which have a

high market value. Especially during normal rainy seasons the areas have benefited the farmers in

planting marketable crops by providing fertile soil, but farmers residing in those areas have also

listed drought and flooding to be as few of the major biophysical constraints they face in

agricultural transformation where un-timely frequent rainfall failure and flooding have destroyed

the grown crops. Interventions by the government and the households have been seen in order to

control the damage flooding may have by applying water harvesting methods which in return have

resulted in a positive impact to the community and the households from which they were able to

harvest multiple time. In terms of market participation communities residing in the lowland areas

perform better, with a coefficient of marginal effect 1.5608, which is significant at all conventional

28

probability levels, whereas for the degree of commercialization both the midland and lowland has

got coefficients of 0.1301 and 0.2525 respectively; both significant at 1% probability level.

The level of land fertility and the implementation of conservation system on farm are important

factors to enhance production and productivity, which in turn render the capacity to produce in

excess of HH consumption and supply to the market. In this country, there is a situation where

several million tons of soil is taken by erosion to the neighboring countries every year. This being

the case, however, there has been relatively little or no studies on national-scale analysis of the

cost of land degradation to the national economy done, but the extent of the problem is getting

worse from year to year, showing an impact on the declining of soil fertility, particularly on fields

away from the homesteads of smallholder farmers. The level of physical and biological

conservation done across the nation is very low compared to the policy set for the purpose,

ministerial offices opened to ensure the same, and the propagandas done through mass medias.

From the qualitative information collected through FGD and KII with household heads, farmers

perceive their lack of ability to fallow on the implementation of fertility restoration method to be

a more important reason for declining fertility than erosion, though they do regret the loss of good

topsoil from their fields, which is being deposited on the fields below, owned by other farmers.

When a bund is cut down, the topsoil collected behind it is shared by the owners of the fields above

and below the bund. This regular practice reduces the attraction of more long-term erosion control

practices such as planting grass lines or hedgerows of agroforestry species. As the system becomes

more intensive, however, the benefits of such practices in terms of fodder production and soil

fertility should increase relative to their labour costs. When fertility declines the productivity

declines and farmers could not produce what is sufficient for their household, let alone supplying

to the market.

In line with this, the regression result indicated significant positive relation of the degree of

commercialization with soil fertility level and the intensity of soil and water conservation

measures. The regression coefficients for the level of soil fertility and for the intensity of

conservation level were 0.039 and 0.1055 respectively. Both coefficients were significant at 5%

probability level. Thus a unit increase in the average soil fertility score of all operated plots is

likely to increase their degree of commercialization by about 3.9%. Similarly a unit hectare of land

brought under appropriate soil and water conservation measure increase the degree of

commercialization by 10.55%.

Even though ownership of different farm plots allows variability and risk minimization

opportunities, fragmentation of land holdings is severe when it is too much and the plots are distant

from one another. In the study area land is highly fragmented into many pieces up to maximum of

9 plots per household, in which a parcel go as small as 0.15 hectare or less. This challenges the

production of uniform output for market purposes as the agronomy of the plots differ and create

inconvenience for the cultivation of same or similar crops. Moreover, it challenges the

employability of economy of scale for some of the farm resources. Similarly available organic

materials, such as manure and crop residues, are used only on fields nearest the homestead. The

fields farther from the home receive no inputs but are left fallow more often. Besides being difficult

to reach, the far fields are also difficult to guard against incursion by grazing cattle. The regression

result for land fragmentation is negatively related to the market participation decision. It indicates

29

a unit increase in the level of fragmentation of available land reduces the probability to participate

in a market by 42.22%, with 95% significance level.

One of the others critical constraints in the effort of commercializing smallholders are the

unpredictability of varying climatic conditions temporally and the impact of global climate change.

All the earlier works done failed to grasp climate variables in their analysis of smallholder

commercialization, whereas global warming and climate change have also affected agriculture

with adverse effects on temperatures, rainfall patterns and water availability. These conditions and

the net production deficit make traditional smallholder agriculture less rewarding, hence the need

for adapted approaches and market-oriented productivity revolution to meet the growing demand.

Climate change impacts not only the production and productivity of agricultural enterprises, but

also the quality of produced supplied to markets. The mounting temperature from year to year has

significant negative implication on the perishable agricultural products supplied, subjecting

significantly to post harvest losses. Especially, at the home of smallholder farmer where there is a

lack of appropriate storage facilities and freezing equipment, produces are highly vulnerable from

rotting, loss to rodents, and infestations.

Therefore, as the environment becomes more dynamic and susceptible to climate change induced

shocks and stresses; the viability of subsistence agriculture in guaranteeing livelihoods declines

and the potential to commercialize smallholders is challenged. This needs a very integrated

mitigation and adaptation measures to be instilled into the farming system. In line with this, the

study area is found to be highly vulnerable to a range of shocks and stresses like drought, flood,

epidemics, wind, landslides and other events. Annually 21.1% of the farm households and 13% of

farmlands are affected by one or combination of these shocks and stresses (Gutu et al, 2012c). The

econometric result from the Tobit regression model also affirms to this finding that households

ability to anticipate rainfall, temperature and climate change induced shocks and stresses have

positive impact on commercialization. The variable has a coefficient of 0.1624 significant 5%

probability levels. This means that households who have a good perception of the current climatic

conditions have probability of commercializing their farms by 16.24%. Therefore, there is a need

for appropriate climate information management system, designing of appropriate mitigation and

adaptation strategies depending on the agro-climatic zones.

Agricultural Logistics and Facilities

The business challenges in the commercialization of smallholder agricultural are both more

complex and broader with respect to those who will be taking part in a market as a smallholder.

Some of the challenges arise from the agricultural logistics, which are outside the control of rural

market participants. The quality of agricultural logistics, which includes but not limited to access

to road, storage facilities, transport facilities, access to price information and communication

services are key in prompting the market participation decision and enhance the degree of

commercialization. In a situation where these factors are either lacking or underdeveloped, the rate

of creating rural transformation through market integration and improvement of the degree of

commercialization is less likely. Asfaw et al. (2010) revealed that distance, poor rural road

networks, lack of appropriate transportation facilities and poor communication system are

negatively correlated with marketed surplus because of the increased transaction costs associated

with marketing.

30

In this particular study, several variables representing the diverse agricultural logistics were

included into the analytical model. The result however, showed significance only for TV

ownership, access to market information through social network, and distance from the market.

Ownership of TV as a source of information on diverse agricultural issues was found to influence

market participation decision with a marginal effect of 1.513 significant at 10% probability level.

Of course in Ethiopia TV ownership is one measure for wealth, modernization, closeness to urban

sentiments and extricating from subsistence agricultural. As one moves into the remote areas far

away from rural villages and towns, the likelihood of encountering a single household with TV or

even sometimes a radio is very rare given the lack of power supply, network availability and

artisans to maintain. Hence the result states that a household that owns a TV has 151% probability

of participating in a market as opposed to a household that does not have.

On the other hand access to market information through the dense of social network, agents, and

neighbors is a key determinant of the degree of commercialization. Basically a single household

cannot be separated from its neighbor and the surrounding community and become more

commercialized given the strong cultural and traditional ties in the rural setting. Hence, the actions

and interactions that take place within a community is an important factor for the degree of

engagement in agricultural business. The result from the regression shows those households who

access market information, especially price information have a 0.0953 probability to be more

commercialized as opposed to their counterparts. The result is significant at 1% probability level.

Another major factors impeding households degree of market orientation is the distance from the

market, which is significant at 1% probability level. A one hour increase from the market brings

decreases in the degree of commercialization by 0.069.

4.3 Outcome of Smallholder Commercialization

4.3.1 Commercialization and Poverty

The ultimate of commercialization after all is to bring the needed rural transformation for the

improvement of the welfare of society and enable them to sustainably progress out of the current

multifaceted poverty. This means that commercialization of agriculture is not an end by itself for

farmers, but it is rather an intermediate outcome on the way to welfare goals. Hence by so many

authors and organization such as von Braun (2008), and NEPAD, (2003) accelerated agricultural

growth is imperative for alleviating and has been identified as the vehicle for economic

development and MDGs in Africa. Similarly, even if there has been no consensus on the impact

of agricultural commercialization on household welfare, the World Bank (2000) asserts three

components of welfare that can be achieved through commercialization. These aspects of welfare

are poverty, inequality and vulnerability. It is from this view points that this study was determined

to examine as to whether households or individuals have enough resources or abilities to meet their

needs through commercialization of their farming. Welfare in here is represented in terms of

consumption of basic food (grains), high-value foods (livestock products) and expenditure on

clothes and shoes, durable goods, education and healthcare. In this context, those who have enough

resources to meet their food needs are usually referred to as food secure. On the other hand, those

with resources to meet both food and non-food needs are referred to as non-poor households (not

in poverty class) and the converse is also true. Therefore, the concept of welfare is multi-

dimensional and flexible when used and whenever it is introduced in this study.

31

This and other literature argue that the main positive outcome of commercialization is better

wellbeing of households resulted from increased income they get from comparative advantage and

technology diffusion from experience shared during market exchange and similarly the welfare

outcome of commercialization is highly specific to location and policy environment. As has been

said in the preceding section, the outcome of driving smallholders into commercialization

sometimes ends in opposite result and may even lead to welfare loss. For instance the works of

Pingali and Rosegrant, (1995); Pingali (1997) and Strasberg et al., (1999) contained the theoretical

arguments against agricultural commercialization that it contributes to poverty and food insecurity.

The finding from this study tends to support this later argument. Table 4 summarize the poverty

level of households in the study area and the relationship with level of commercialization.

Table 4. Classification of HH by poverty status and market participation

Poverty Status Percentage Market

Participation Poor Non-poor Total

Poor 90%

Non-poor 10% Market participants 90% 10% 100%

Total 100%

Non-market

participants 85% 15% 100%

Source: Computed from survey data

From table 4, apparently 90% of the total population are below the poverty line and unable to meet

the basic need of life. Surprisingly the proportions of poor households who are unable to meet the

basic needs of life are within the market participating category.

Moreover, the data has shown a clear picture of the fact that increase in the degree of smallholder

commercialization leads to loss of productivity and the capacity to produce food on the basis that

farmers will drop productions of those crops that are significantly consumed at home in favor of

marketable crops (such as potato). This in turn exposes households to increased risks usually

associated with market price fluctuations that are normally of little concern in subsistence

production settings. In addition, commercialized farmers face increased risks associated with yield

fluctuation due to climate variability. When production becomes more specialized there is a loss

of advantages associated with diversification as risk minimization strategy. Given the risky

economic environment under which smallholder farmers operate, maintenance of own food

supplies can therefore be economically first best strategy. This is indication for the need to

approach smallholder commercialization from a different angle as opposed to what has been taking

place in the past. Such approach must take into consideration of the situation of smallholder

farmers; resource endowments, farming system, their proximity to market, natural environment,

and more.

4.3.2 Determinants of HH poverty

Poverty and food insecurity are the daily experiences of most people of the study areas as expressed

with high proportion of people living below the cutoff point. There are widely varying reasons for

the prevalence of deep rooted poverty and food insecurity. Various writers such as FSS (2002) and

Tassew, (2004) argue that the causes of poverty in rural Ethiopia include lack of income, pervasive

diseases, malnutrition and lack of decent health care, schooling and potable water, which are

compounded by high rural unemployment/underemployment, fast depletion of natural resources

32

and the increasing shrinkage of cultivable land. At a micro level, lack of asset and endowment

such as land, oxen, off-farm income opportunities, etc further exacerbate chronic food insecurity.

Another point worth mentioning is that the bulk of the Ethiopian population lives in rural areas

where incomes, largely derived from agriculture, are very low and subject to the vagaries of nature.

Because of persistent dominance of rain-fed traditional agriculture, the economy is prone to sharp

and frequent fluctuations due to changes in weather condition. An example of such could be the

current horn of African crises due to the 2015 Eli Nino where over 10.2 million people in addition

to the already about 8 million food insecure households are suffering from drought and flooding,

leaving them to food aid. As one of the coping strategies in such situation large number of families

are compelled to practice over cultivation, overgrazing, and expansion of cultivable land at the

expense of the forest, pasture and sloppy areas, which eventually causes degradation of the natural

resource base and declined productivity, thus exacerbating poverty. Table 5 presents the logistic

regression output regarding critical factors determining poverty situation among the households of

the study area.

Table 5. Logistic regression result for HH poverty

Variables Marginal Effects St. Error

Marital status -3.1138*** 0.7951

Household wealth -0.8710** 0.4301

Size of land cultivated (ha) -0.0216* 0.0295

Livestock ownership (TLU) -0.5188*** 0.1402

Total output per ha -0.2578*** 0.0832

Diversity of livelihood options 0.2203* 0.1290

Proportion of saving-to-Income -36.7324*** 8.9376

Institutional participations -0.6708*** 0.2211

Agro climatic zone: midland 1.9124** 0.9723

Vulnerability status to CC: Highly vulnerable 0.6946* 0.4219

HH level of adaptation to CC (Indexed) -1.9923* 1.1052

Market participation decision 1.8908* 0.8875

Con. 13.5963** 4.6832

Log likelihood -59.54

Wald chi2(25) 64.41

Prob > chi2 0.000 ***,** and * implies significance at 1%, 5% and 10% probability levels respectively

Source: Model output for the survey data

Out of the twenty five different socio-economic, natural, demographic, logistics and climate

change variables included into the model, 12 of them were found to be statistically significant in

affecting consumption poverty status. The maximum likelihood estimate of the logit model shows

that marital status, level of household wealth, size of land cultivated, livestock ownership, farm

productivity, number of enterprises diversity, proportion of household saving to income,

participation in local institutions, residence in mid-agro climatic zones, HH’s degree of

vulnerability to climate change induced shocks and stresses, households’ level of adaptation to CC

33

and participation in the market are important policy factors in reducing poverty and ensuring

sustainable development.

The degree of smallholder commercialization could not be proved of being significant determinant

of poverty in the logit model result. However, contrary to the expectation, the statistical result

(Figure 2) indicates that there is a positive relationship between poverty and level of

commercialization. On the other hand, market participation and poverty status was found to be

positively related with statistically significant coefficient at 10% probability level. This means that

it is those who are very poor and unable to meet the basic needs of life from the farming system

that usually tend to bear the rigors of market access challenges and travel all those long distance

to take part in the market.

5. CONCLUSION AND RECOMMENDATIONS

5.1 Conclusion

The findings from this study lead us to make certain important conclusions in terms of the

smallholders’ market participation, degree of commercialization, and poverty status for the study

area. In the first place, there is significant proportion of households who do not take part in the

product market because of various reasons. Market participation is an important first step in

determining the degree of smallholder commercialization. Even if the study area is at a closest

distance to the nations’ capital and is relatively better in terms of some of the infrastructure, the

findings evidence that the degree of commercialization in the area is very low, to the extent that

only insignificant proportion of households’ have engaged in market oriented production. The

degree of commercialization is influenced by a combination of range of demographic, social,

economic, logistic and climate change factors, which indicates the need for a comprehensive

approach to commercialization. There is difference among the commercialized and semi

commercialized in terms of some of the important factors influencing the degree of

commercialization.

Unlike many of the literature that has brought significant positive relationship between market

participation and poverty, this study found out that the fact to be the opposite. Those participating

in the markets are rather poor than non-participation. As such the degree of commercialization is

not significant determinants of poverty; rather poverty is influenced by other socio-economic,

natural and climatic factors. Moreover, there is a trade-off relationship between the degree of

commercialization and household’s rural poverty.

5.2 Recommendations

- The degree of commercialization of the smallholder in the central part of the country should

be significantly improved through appropriately designed policy. The level of growing

commercial crops in all of the three agro-climatic zones is very low and even non-existent in

some cases. Households are rather using staple food to meet cash needs. Therefore, there must

be an intervention strategy by the government to improve the engagement of HH in market

oriented agriculture through affirmative and supportive actions;

- The commercialization of smallholder farmers is constrained by a variety of factors. Hence,

the government should be able to design strategy that boost HH access to climate information,

34

improved adaptation to climate change induced shocks and stresses, improve access to

agricultural logistics, and improve service provision such as access to credit, access to market

information, institutional strengthening and more. More specifically, the agricultural extension

package should include the improvement of rural entrepreneurship, climate change related

awareness, and creation of market linkages;

- At present, commercialization is not contributing to the poverty reduction strategy in the areas.

This is because the strength of the link between commercialization and poverty level is very

weak. Hence, deliberate intervention should be made in enabling business oriented farming as

a way out of the vicious circle of HH poverty;

- The ever decreasing size of land and the frequency of land fragmentation are instilling a serious

bottleneck to promote any sort of commercialization. Hence means should be sought to make

an exit from the farming system so that the land that would be left behind enables the remnants

and productive households to commercialize.

REFERNCES

Adelman, I. and P. Berck, (1991). ‘Food security policy in a stochastic world’. Journal of Development

Economics, Vol 34 no 1, pp 25-55

African Leadership Forum, (1989). ‘The Challenge of Agricultural production and Food security in Africa’.

Report of Conference 27 – 30 July 1989. Ota, Nigeria

Alamgir, M. and P. Arora, (1991). ‘Providing food security for all, international fund for agricultural

development’. New York University Press, USA

Alemayehu Seyoum, Dorosh, P. and Sinafikeh Asrat (2011). ‘Crop Production in Ethiopia: Regional

Patterns and Trends’. Working Paper No. 16: Ethiopia Strategy Support Program II (ESSP II),

IFPRI (International Food Policy Research Institute (IFPRI)), Addis Ababa, Ethiopia

Al-Hassan, R. M., Sarpong, D. B. and Mensah-Bonsu, A. (2006). ‘Linking Smallholders to Markets. Ghana

Stategy Support Program’. Background Paper No. GSSP 0001.

Aman Tufa, Adam Bekele and Lemma Zemedu (2014). ‘Determinants of smallholder commercialization

of horticultural crops in Gemechis District, West Hararghe Zone, Ethiopia’. African Journal of

Agricultural Research. Vol. 9(3), pp. 310-319, DOI: 10.5897/AJAR2013.6935. ISSN 1991-637X

©2014 Academic Journals http://www.academicjournals.org/AJAR

Amsalu Mitiku (2014). ‘Impact of Smallholder farmers agricultural commercialization on rural household’s

poverty, Jima zone, Ethiopia’. International journal of applied economics and finance 8(2):51-61.

ISSN1991-0886/DOI:10.3923/ijaef.2014.51.61

Asfaw S, Bekele S, Franklin S (2010). ‘Does Technology Adoption Promote Commercialization? Evidence

from Chickpea Technologies. in Ethiopia’ JEL classification: C13, C15, C34, C52, O32, O38.

http://www.csae.ox.ac.uk/conferences/2010-edia/papers/121-Asfaw.pdf

Azage, T. and G. Alemu, (1998). ‘Prospects for peri-urban dairy development in Ethiopia’. Ethiopian

Society of Animal Production (ESAP). No. 5. Addis Ababa.

Barrett, C. (2008). ‘Smallholder Market Participation: Concepts and Evidence from Eastern and Southern

Africa’. Food Policy 33: 299 – 317

Bezabih E, Hadera G (2007). ‘Constraints and opportunities of horticulture production and marketing in

eastern Ethiopia’. Dry Lands Coordination Group Report. Grensen 9b. Norway. pp. 46-90.

Berhanu G and Moti J (2010). ‘Commercialization of Smallholders: Does Market Orientation Translate

into Market Participation? Improving Productivity and Market Success’. (IPMS) of Ethiopian

Farmers Project Working Paper 22. Nairobi, Kenya, ILRI

Bernard T and Spielman D (2008). ‘Mobilizing rural institutions for sustainable livelihoods and equitable

development: A case study of agricultural marketing and smallholder cooperatives in Ethiopia’.

35

Retrieved February 23, 2009 from

http://www.siteresources.worldbank.org/extsocialdevelopment/resources/thematic_study_govern

ance.pdf 2008

Berhanu Gebremedihin, Hoekstra, D. and Azage Tegegne (2006). ‘Commercialization of Ethiopian

agriculture: Extension Service from Input Supplier to Knowledge Broker and Facilitator’. (IPMS)

of Ethiopian farmers project Working Paper I. ILRI, Nairobi, Kenya. 36pp.

C.A. Okezie, A.C. Nwosu, and C.R.Okezie (2008). ‘An assessment of the extent of the commercialization

of agriculture in Abia State, Nigeria’. Agricultural Journal, 3(2),2008, 129-133.

Carter M.R. and C.B. Barrett (2006). ‘The Economics of Poverty Traps and Persistent Poverty: An Asset –

Based Approach’. Journal of Development Studies 42.2: 178 – 199

Chapoto A., A. Mabiso and A. Bonsu (2013). ‘Agricultural Commercialization, Land Expansion and

Homegrown Large-Scale Farmers: Insights from Ghana’. IFPRI Discussion Paper 01286.

http://www.ifpri.org/sites/default/files/publications/ifpridp01286.pdf. Accessed on May 25, 2016.

Chanyalew Seyoum, Tesfaye Lemma, and Ranjan S. Karippai (2011). ‘Factors Determining the Degree of

Commercialization of Smallholder Agriculture: The Case of Potato Growers in Kombolcha

District, East Hararghe, Ethiopia’. Journal of Agricultural Development 2 (1) PP18-36

C.H. Sokoni,(2007). ‘Commercialization of smallholder production in Tanzania: Implications to

Sustainable resources management’. Draft paper presented at the workshop on resource

management and sustainable development, White Sands Hotel, Dares Salaam, August13-17, 2007

C. P. Timmer, (1997). ‘Farmers and markets: The political economy of new paradigms’. American Journal

of Agricultural Economics.79 (2), 1997, 621–627.

CSA (Central Statistical Agency) (2009). ‘Statistical report on area and production of crops’. Addis Ababa,

Ethiopia.

CSA (Central Statistical Authority), (2007). ‘Population census’. Addis Ababa, Ethiopia.

Demese C, Berhanu A, Mellor J (2010). ‘Federal Democratic Republic of Ethiopian, Ministry of

Agriculture and Rural Development draft report on Ethiopia’s Agriculture Sector Policy and

Investment Framework’. Ten Year Road Map (2010-2020). May, 2010, Addis Ababa, Ethiopia.

Dinh, H., Palmade, V., Chandra, V., and Cossar, F. (2012). ‘Light Manufacturing in Africa: Targeted

Policies to Enhance Private Investment and Create Jobs’. The World Bank, Washington DC.

EFDR Road Authority (2016). ‘The Ethiopian road authority publication’. Downloaded on May 23, 2016

http://ethiopianbusinessreview.net/index.php/investment/item/530-road-to-nowhere-rural-road-

programme-lags-behind-plan

Faber _ (2012). ‘Examines the effect of China’s massive program of trunk road construction from the late

1990s through the 2000s”

FAO, (2011). “Sustainable food and nutrition security’. Sixth report on the world nutrition situation, Italy,

Rome

FAO. (2002). ‘The State of Food Insecurity in the World 2001’. Rome, Italy

FDRE, (2010). ‘The Second Growth and Transformation Plan (GTP II) (2010)’. Addis Ababa, Ethiopia

FSS (2002). ‘Consolidated Report on FSS’ Program of Public Debates, Consultations and Research on

Poverty and Poverty Reduction in Ethiopia’. Forum for Social Studies

G. Abera (2009). “Commercialization of smallholder farming: Determinants and welfare Outcomes”. M.Sc

Thesis University of Agder, Norway

Geoffrey S. Muricho, Damiano K. Manda and Fredrick O. Sule (2015). ‘Determinants of agricultural

commercialization and its impacts on welfare among smallholder farmers in Kenya’. Published

PhD dissertation. Nairobi, Kenya

Govereh J., T.S. Jayne and J. Nyoro. (1999). ‘Smallholder Commercialization, Interlinked Markets and

Food Crop Productivity: Cross-Country Evidence in eastern and southern Africa’.

http//www.aec.msu.edu/fs2/ag_transformation/atw_govereh.PDF

36

Gutu Tesso, Mengistu Ketema and Bezabih Emana (2012a). ‘Adaptation to Climate Change and Its Impact

On Food Production in North Shewa Zone, Ethiopia’. Advances in Agriculture, Sciences and

Engineering Research http://www.ejournal.sedinst.com © Science Education Development

Institute, Volume 2 (8) Aug: 285 - 298, ISSN: 2276 – 6723, Printed in Nigeria

Gutu Tesso, Bezabih Emana and Mengistu Ketema (2012b). ‘Analysis of vulnerability and resilience to

climate change induced shocks in North Shewa, Ethiopia’. American journal of agricultural

science, Vol.3, No.6, 871-888 (2012)

Gutu Tesso, Bezabih Emana and Mengistu Ketema (2012c). ‘A time series analysis of climate variability

and its impact on food production in North Shoa, Ethiopia’. African Crop Science Journal, Vol.

20, Issue Supplement s2, pp. 261-274. ISSN 1021-9730/2012 $4.00. Printed in Uganda.

Gutu Tesso, Bezabih Emana and Mengistu Ketema (2013). ‘Maintaining minimum livelihood under

changing Climate in North Shewa Zone, Ethiopia’. a mathematical programming approach,

International Research Journal of Agricultural Science and Soil Science (ISSN: 2251-0044) Vol.

3(2) pp. 51-65, February 2013. Available online http://www.interesjournals.org/IRJAS

Havnevik, K., Tekeste Negash and Atakilte Beyene (2006). ‘Introduction to Rural Livelihood and

Governance Issues’. pp. 11–30 In: K. Havnevik, Tekeste Negash and Atakilte Beyene (eds.), Of

Global Concern: Rural Livelihood Dynamics and Natural Resource Governance. Sida Studies no

16.

Henok Assefa, Derk Bienen and Dan Ciuriak (2013). ‘Ethiopia’s Investment Prospects: A Sectorial

Overview’. African Review of Economics and Finance, Vol. 4, No.2, June 2013. Journal

compilation ©2013 African Centre for Economics and Finance. Published by Print Services,

Rhodes University, P.O. Box 94, Grahamstown, South Africa

H.L. Fro¨hlich et al. (eds.), (2013). ‘Sustainable Land Use and Rural Development in Southeast Asia:

Innovations and Policies for Mountainous Areas, Springer Environmental Science and

Engineering’. DOI 10.1007/978-3-642-33377-4_12, # The Author(s) 2013

IFAD (2010). ‘New Realities, New Challenges: Opportunities for Tomorrow’s Generation. Rural Poverty

Report 2011’. International Fund for Agricultural Development (IFAD) Rome, Italy

Jaleta, M., B. Gebremedhin and D. Hoekstra (2009). ‘Smallholder Commercialization: Processes,

Determinants and Impact’. Discussion Paper No. 18. Improving Productivity and market Success

(IPMS) of Ethiopian Farmers Project, ILRI (international Livestock Research Institute), Nairobi,

Kenya. 55 pp

Jari, B. and Fraser, G. C. G. (2009). ‘An analysis of institutional and technical factors influencing

agricultural marketing amongst smallholder farmers in the Kat River Valley, Eastern Cape

Province, South Africa’. African Journal of Agricultural Research, 4(11), 1129–1137. Retrieved

from http://www.academicjournals.org/ajar

Jayne, T.S. and M. Muyanga (2012). ‘Land Constraints in Kenya’s Densely Populated Rural Areas:

Implications for Food Policy and Institutional Reform’. Contributed Paper prepared for

presentation at the 86th Annual Conference of the Agricultural Economics Society, University of

Warwick, United Kingdom. 16 -18 April 2012.

Jennifer Coates and Tina Galante (2014). ‘Agricultural Commercialization, Production Diversity and

Consumption Diversity Among Smallholders in Ethiopia: Results from the National Ethiopia

Integrated Survey on Agriculture, Rural Socioeconomic Survey’. 2012 Friedman School of

Nutrition Science and Policy Tufts University. USA

J, Govereh, T, S. Jayne, and J, Nyoro (1999). ‘Smallholder commercialization, interlinked markets and food

crop productivity: Cross-country evidence in Eastern and Southern Africa’.

fromhttp://www.aec.msu.edu/fs2/ag_transformation/atw_govereh.PDF 1999

J, Leavy, and C, Poulton (2007). ‘Commercialization in agriculture’. Ethiopian Journal of Economics, 16

(1), 2007, 3-42.

J. Von Braun (1995). ‘Agricultural commercialization: Impacts on income and nutrition and implications

for policy. ‘Food Policy,20 (3), 1995, 87-202.

37

Lakshmanan (2011). ‘The World Banks Africa Infrastructure Country Diagnostic program highlights the

progress in developing the trunk road system in Ethiopia’. (Foster and Morella, 2011, p. 6).

L.P. Pingali & M.W. Rosegrant, (1995). ‘Agricultural commercialization and diversification: Process and

polices’. Food Policy, 0 (3), 1995, 171–185.

MoFED (Ministry of Finance and Economic Development) (2005). ‘Ethiopia: Building on progress: A plan

for accelerated and sustained development to end poverty (PASDEP 2005/06-2009/10)’. Addis

Ababa, Ethiopia

MoFED (2010). ‘FDRE document of Agricultural Growth Program: Summary of Agriculture and Food

Security Strategy and Post Compact Policy and Investment Framework’. Addis Ababa, Ethiopia

MoFED (Ministry of Finance and Economic Development) (2006). ‘Ethiopia: Building on progress. A plan

for Accelerated and Sustained Development to End Poverty (PASDEP 2005/06-2009/10)’.

Volume I, Main text. Addis Ababa, Ethiopia: Ministry of Finance and Economic Development.

OECD (Organization for Economic Cooperation and Development). (2010). ‘Economic Importance of

Agriculture for Sustainable Development and Poverty Reduction: The Case Study of Ethiopia’.

Global Forum on Agriculture 29-30 November 2010. Policies for Agricultural Development,

Poverty Reduction and Food Security: OECD Headquarters, Paris.

Okidi Joseph, Legesse Dadi, Bezabih Emana and Ephraim Chabayanzara, (2015). ‘Rapid Seed System

Security Assessment in the Belg Growing Areas of Amhara, Oromia, SNNPR and Tigray Regions

of Ethiopia’. Addis Ababa, Ethiopia

Olwande, J. and M. Mathenge (2011). ‘Market participation among poor rural households in Kenya’.

Tegemeo Institute of Agricultural Policy and Development. Working Paper Series (WPS

42/2011). Egerton University

P. Hazell, C. Poulton, S, Wiggins, and A. Dorward, (2007). ‘The future of small farms for poverty reduction

and growth’. International Food Policy Research Institute (IFPRI) Discussion Paper, 42, 1-16.

Pingali P.L. and M.W. Rosegrant (1995). ‘Agricultural Commercialization and diversification: processes

and policies’. Food Policy, Vol. 20, No. 3, pp. 171 – 185, 1995

Pingali P. L. (1997). ‘From Subsistence to Commercial Production Systems: The Transformation of Asian

Agriculture’. American Journal of Agricultural Economics, 79 (May 1997): 628 - 634

Reyes, B., C. Donovan, R. Bernsten and M. Maredia (2012). ‘Market Participation and sale of potatoes by

smallholder farmers in the central highlands of Angola: A double Hurdle approach’. Angola

Republic of Kenya (2005). ‘Economic Survey 2005’. Nairobi, Kenya

Samuel Gebreselassie and Kay Sharp (2008). ‘Commercialization of smallholder agriculture in Selected

‘Tef’-growing areas of Ethiopia’. Future Agriculture discussion paper 6. Downloaded on May 20,

20016 from www.future-agricultures.org

Sileshi Bekele, Teklu Erkossa and Regassa E. Namara (2010). ‘Irrigation potential in Ethiopia Constraints

and opportunities for enhancing the system’. International Water Management Institute.

Downloaded on May 23, 2016 https://ethiopianagriculture.files.wordpress.com/2010/11/ethiopia-

irrigation-diagnostic-july-20101.pdf

Siziba S., K. Nyikahadzoi, A. Diagne, O.A. Fatunbi and A.A. Adenkunle (2011). ‘Determinants of Cereal

Market Participation by Sub-Saharan Africa Smallholder Farmer’. Journal of Agriculture &

Environmental Studies. Vol. 2, No. 1 (2011).

Sharma, P.V.; D. Jain and S. De (2012). ‘Managing Agricultural Commercialization for Inclusive Growth

in South Asia’. Global Development Network (GDN). The Global Research Capcity Building

Program.

Shiferaw et al. (2012). Document the impact of Ethiopia’s road development’. They study the relationship

between the quality of the road transport infrastructure and enterprise performance in Ethiopia

Strasberg P.J., T.S. Jayne, T. Yamano, J. Nyoro, D. Karanja and J. Strauss (1999). ‘Effects of Agricultural

Commercialization on Food Crop Input use and productivity in Kenya’. Michigan State University

International Development Working Papers No. 71. Michigan, USA

38

Tassew Woldehanna (2004). ‘New Pro-Poor Policies, Pre PRSP Experiences and the 2003-04 Budget in

Relation to Agriculture and Food Security in Ethiopia’. GTZ and Addis Ababa University. Addis

Ababa.

Tekalegn D, Belayine L and Lema Zemadu (2014). ‘Determinants and welfare outcomes of

commercialization of smallholders’ farming: the case of Anchar woreda, west Hararghe,

Ethiopia’. MSc thesis, Haramaya Ethiopia

Tesfaye Lemma, Azage Tegegne and Hoekstra, D. (2012). ‘Capacity for knowledge based smallholder

agriculture in Ethiopia: Linking Graduate Programs to Market-Oriented Agricultural

development: Challenges, Opportunities and IPMS Experience’. IPMS of Ethiopian Farmers

Project Working Paper 29, Nairobi, Kenya: ILRI.

Thurlow J., J. Kiringai and M. Gautam, (2007). ‘Rural Investments to accelerate Growth and Poverty

Reduction in Kenya’. IFPRI Discussion Paper 00723. Development Strategy and Governance

Division, Washington DC

Tilaye B (2010). ‘How to involve smallholder farmers in commercial agriculture/horticulture’. Ethiopian

horticulture producers and exporters association, Addis Ababa, Ethiopia.

Todaro, P.M. (1989). ‘Economic Development in the Third World.’ Fourth Edition. Longman Group UK

Limited. Longman House, Burnt Mill, Harlow, Essex CM20 2JE England

Von Braun J. (1994). ‘Agricultural Commercialization, Economic Development and Nutrition’. Baltimore,

Maryland, USA: Johns Hopkins University Press.

Von Braun, J. (2005). ‘Small-scale farmers in a liberalized trade environment’. In: T. Huvio, J. Kola, and

T. Lundström (eds.) Small-scale farmers in liberalized trade environment, Proceedings of the

seminar, October 18–19, 2004, Haikko, Finland. Department of Economics and Management.

Helsinki: University of Helsinki Agricultural Policy.

Wickramasinghe U. and K. Weinberger (2013). ‘Smallholder Market Participation and Production

Specialization: Evolution of Thinking, Issues and Policies’. CAPSA Working Paper No. 107,

CAPSA – ESCAP 2013.

Wooldridge, M. (2009). ‘Introductory Econometrics: A Modern Approach’. Fourth Edition

Woolverton, A., J. Okello, M. Benci and D. Neven (2014). ‘Attitudes and Decision Making in Smallholder

Commercialization’. In Woolverton, A. and D. Neven (edts) Understanding Smallholder Farmer

Attitudes to Commercialization – The case of Maize in Kenya. FAO, Rome.

World Bank. (2007). ‘Ethiopia Agriculture and Rural Development Public Expenditure Review 1997/98-

2005/06’. February 2007.

World Bank. (2010). ‘Ethiopian agricultural growth project: Project Appraisal Document’. Addis Ababa,

Ethiopia: World Bank

World Bank (2000). ‘World Development Report 2000/2001: Attacking Poverty’. The World Bank,

Washington DC

World Bank (2009). ‘Kenya - Poverty and inequality assessment : executive summary and synthesis

report’.Washington,DC:WorldBank.http://documents.worldbank.org/curated/en/2009/04/108426

64/kenya-poverty-inequality-assessment-executive-summary-synthesis-report. Accessed 7

September 2015

World Bank, (2007). ‘World Bank assistance to agriculture in sub-Saharan Africa: An IEG review’.

Washington DC, 2007, 1-26.

Yodit Balcha (2013). ‘Prospects of Transforming Subsistence Agriculture into Sustainable Livelihoods: A

case-study of the Ribb sub-Catchment, Ethiopia’. MSc Thesis submitted to Uppsala University,

Sweden

Zegeye, W.W., (2003). ‘Imperative and challenges of dairy production, processing and marketing in

Ethiopia’. In: Y. Jobre and G. Gebru, (eds.): Challenges and opportunity of livestock marketing

in Ethiopia. Proceeding of the 10th annual conference of the Ethiopian Society of animal

production (ESAP), 22-24 August 2002, Addis Ababa, Ethiopia, pp: 61-67.

39

APPENDICES

Annex 1. Conceptual framework for measuring level of commercialization and its impact on poverty

Source: Developed by the author

The landscape

Industrial Growth, Agricultural Logistics,

Land tenure security

Cli

mat

e v

aria

bil

ity

(sh

ock

s an

d

Str

ess)

Rules of the game (institutions) Policies

Peace and Security,

Nat

ura

l R

eso

urc

es d

egra

dat

ion

Lan

d g

rab

bin

g a

nd d

isp

lace

men

t

Governance issue

Su

bsi

sten

ce o

rien

tati

on

Access to Services

- Extension - Imp. Inputs

- Market information

- Credit

- Entrepreneurial train.

Demography

-Literacy -Family size

-Health - Marital

-Gender

Empowered World

View

- Aspirations

- Self motivation

- Willingness for

transformation

- Storage

Degree of Stallholder Commercialization (Market Oriented Agr. Production)

Market Participation

Facilities

- Road

- Dist. to Market

- Transportation

- Storage

Resource Holding

- Land size - Land

fertility

- Livestock

- Perennial crops

- Water for irrigation

Smallholder Commercialization’s Impact on Poverty Reduction

40

Annex 2. Estimation of farm income required to meet minimum requirement for average family

A Types of Food

Consumed

Average

Consumptio

n (KG/yr)

%age

share

Total KCal

for 4

Adults

/year

Total KG

food

required

per year

for 4

Adults

Average

current

price in

North

Shewa

(Birr/kg)

Total Income

required to

purchase this

food (Birr) Cereals

Teff 104 14.04 471298.25 131.32 10 1313.17

Maize 55 7.49 251396.83 73.51 5.5 404.29

Wheat 106 14.37 482459.86 134.99 6 809.95

Barely 45 6.09 204416.55 54.91 5 274.53

Sorghum 158 21.37 717583.30 188.59 6 1131.54

B Leguminous

Pea 22 3.00 100653.90 28.33 19 538.26

Beans 10 1.40 46885.11 44.70 10 447.04

Chick pea 25 3.41 114357.80 20.06 9 180.56

Faba bean 36 4.86 163141.70 498.49 11 5483.42

C Oil

Soya 2 0.29 9802.10 4.46 20 89.11

Sesame 14 1.89 63443.99 7.40 16.5 122.13

D Fruits

Orange 4 0.54 18126.86 63.23 6 379.39

Banana 6 0.81 27190.28 58.26 4.5 262.19

E Vegetables

Beet root 12 1.66 55640.38 123.65 2 247.29

Potato 15 2.02 67975.71 12.72 5 63.61

Tomato 9 1.21 40785.43 407.85 6 2447.13

Onion 57 7.70 258629.44 923.68 3.5 3232.87

Cabbage 15 2.02 67726.46 298.79 3 896.37

F Livestock byproduct Meat 19 2.56 86102.56 75.00 90 6750.20

Milk 10 1.35 45317.14 61.49 13 799.35

Butter 14 1.88 63095.05 8.57 120 1028.16

Total consumption 741 100 3358000 26,900.6

G Other Non-Agricultural food Expenditures (Birr)

Average health expenditure

98

Average education expenditure

256

Average expenditure on cloth

960

Average expenditure on industrial consumption

670 Average expenditure on social obligations

210

Grand Total (Birr) 29,094.71

Sources: Authors’ calculation based on HH survey

41

Recent Publications in the Series

nº Year Author(s) Title

252 2017 Ibrahim Alley Capital flow surges and economic growth in sub-

Saharan Africa: Any role for capital controls?

251 2017 Solomon Abayomi Olakojo

Foreign trade and international financial flows:

Implications for economic stability in ECOWAS

countries

250 2017 Anthonia T. Odeleye Quality of Corporate Governance on Dividend Payouts:

The Case of Nigeria

249 2017

Arcade Ndoricimpa

Threshold Effects of Inflation on Economic Growth in

Africa: Evidence from a Dynamic Panel Threshold

Regression

248 2017 Boris Odilon Kounagbè Lokonon Farmers’ Vulnerability to Climate Shocks: Insights from

the Niger Basin of Benin

247 2017 Adamon N. Mukasa, Anthony M.

Simpasa, Adeleke O. Salami

Credit constraints and farm productivity: Micro-level

evidence from smallholder farmers in Ethiopia

246 2017 Abebe Shimeles and Tiguene

Nabassaga Why is inequality high in Africa?

245 2016 Anthony Simpasa and Lauréline Pla Sectoral Credit Concentration and Bank Performance in

Zambia

244 2016 Ellen B. McCullough Occupational Choice and Agricultural Labor Exits in

Sub-Saharan Africa

243 2016 Brian Dillon Selling crops early to pay for school: A large-scale

natural experiment in Malawi

42