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HARAMAYA UNIVERSITY
POSTGRADUATE PROGRAMME DIRECTORATE
COLLABORATIVE MASTERS IN AGRICULTURAL AND
APPLIED ECONOMICS (CMAAE)
MSc Thesis
AMAN KEDIR
APRIL 24, 2021
HARAMAYA IMPACT OF CONTRACT FARMING ON SMALLHOLDER MALT BARLEY FARMER’S INCOME IN LEMU BILBILO DISTRICT, ARSI ZONE, OROMIA REGION , ETHIOPIA
ADVISORS Ketema. B (PhD) Mohammed. A (Ass.Prof.)
2 OUTLINE
Introduction
Methodology
Results
Conclusions
Recommendations 3 1. INTRODUCTION: Background Ethiopian economy is highly depends on agriculture w/c is 40% of GDP, 80% of export earning and 75%, of workforce.
However, the sector is characterized by; low productivity, small-scale,
subsistence farm, rain-fed, poor market institutions etc.
There is also d/t systematic obstacles to agricultural transformation in
Ethiopia(Getachew, 2020 and others)
Contract farming is a tool to solve such problems both in agricultural
production and marketing. It is key element in Ethiopian GTP-II. 4 Background CF benefit SH farmers with farm input, advice, reduce transaction cost, correcting market failure, reduce land grabbling etc.
• Many scholars studied the effect of CF on welfare indicators, farm
HH income in particular.
Most of these studies claim that CF is increase farm income while
some others reports it reduce farm HH income.
Moreover, contract agreement b/n these parties were breach due to 5
Background … absence of trust, weak legal enforcement, less description of CA etc.
In Ethiopia, over the last two-decades CF has been introduced by
malt and brewery factories.
To increase SH farmers productivity, income, cut import bill and
providing quality of MB for breweries.
Thus, the aim: to know whether participating in MB CF has positive
or negative effect on SH farmer’s income. 6 Problem Statement
SH agriculture is still one of the main sources of food and nutrition
security, income and reducing poverty in SSA including Ethiopia.
However, SH farmers of these region were faces a number of
production and marketing constraints.
CF has been taken as a possible solution to address some of such
production and marketing problems of SH farmers.
It benefit farmers with farm inputs, credit, technology, market etc. 7
Problem Statement…… However, CF is a debated subject regarding its effect on HH income (either positive or negatives view).
Positive view: It benefit farmer via resource and market provision
and product management and thereby rise their income
Negative new: It is a means of farmers exploitation by agri-business
firms due to potential power imbalances b/n them.
Furthermore, CF fail due to poor of mutual commitment b/n contract
8 parties Problem Statement……
• To date, some studies have been conducted on the effect of CF on
welfare indicators of in Ethiopia.
• The empirical evidence on the impact of CF in stable crops like MB
is limited in Ethiopia, particularly in study area.
• Hence, this study factors affect both farmers choice of CEM and involvement in MB CF and effect CF on HH income. Objectives General Objective
To analyze the impact of MB CF on HH income in Lemu-Bilbilo
District, Arsi Zone, Oromia region, Ethiopia.
Specific objectives
To identify the factors affects participation of SH farmers in MB CF.
To analyze the impact of malt barley CF on SH farmer’s income.
To identify the factors affecting the farmer's choice of MB CEM.
10 3. Methodology: Study area description .Lemu-Bilbilo is one of the districts of Arsi Zone, and located in SE of AA
about 235 Km, and 56 Km south of Assella town.
It lies within an elevation of 1,800 to 4,180 m.a.s.l. with a mean annual
rainfall of 800-1400ml and T0 of 60c to 200c.
It is X-rized by the mixed farming system where crop production is
dominant.
It is the barley producing area particularly MB in Zone, w/c consists about
11 27.4% of total malt barley production of the zone. Cont…
12 Sampling procedure and sample size determination
• A multistage sampling procedure were used to select sample HH.
• 2nd stage: sample HH were stratified into parti. and non-parti. HH.
• 3rd stage: sample of parti and non-parti. HH were selected by SRS.
• Using, Kothari (2004) formula, the farmer’s sample size of 342 farm households were determined. 13 Types, Sources, and Methods of Data Collection Both quantitative and qualitative types of data were gathered from primary and secondary sources.
The primary data were collected from the survey of randomly
selected sample HH using SS questionnaires and FGD.
Secondary data were gathered from published and unpublished
documents.
14 Method of data analysis For data analysis descriptive and inferential statistics and econometric model were employed.
Among the descriptive: mean, percentages and frequency distribution
were used
Among the Inferential: t-test, standard error and chi2-test were used
Among Econometric models: binary logistic regression, propensity
score matching(PSM), and trivariate probit model(TPM) were used.
15 IV’s and their Working Hypothesis for Var. Inc. in CF Dependent variable Type of variable Measurement unit Contract participation Dummy 1 if yes 0 if no Outcomes variable Annual income Continuous In Ethiopian birr Independent variables Types of var Measurement unit Expected sign CF Age of household head Continuous In a year Sex of household head Dummy 1 = male, 0 otherwise Distance to all weather roads Continuous In kilometer Family size Continuous man equivalent Off/nonfarm income Continuous ETHB Landholding size Continuous In hectare Formal year of schooling Continuous Year of schooling TLU excluding oxen Continuous TLU Number of oxen owned Continuous Number of oxen Membership to cooperative Dummy 1 = member, 0 otherwise Access to Credit service Dummy 1= access, 0 otherwise Frequency of extension visit Continuous Number of visit Access to contract information Dummy 1 = access 0 otherwise 16 Cost of Farm input Continuous ETB IV’s and their Working Hypothesis Var. incl. choice CEM Dependent variables Types variables Measurement unit SE Dummy variable 1 if HH chooses SE and 0 otherwise PE Dummy variable 1 if HH chooses PE and 0 otherwise LE Dummy variable 1 if HH chooses LE and 0 otherwise Independent variables Type variable measurement unit Expected sign SE PE LE Age Continuous In a year - + - Marital status Dummy 1= married, 0 otherwise + + - Access to market information Dummy 1 = access 0 otherwise - + + Length of relationships Continuous In kilometer + + - Distance to buyer Continuous In kilometer + - - Volume of transaction Continuous In quintals - - + Memberships to cooperative Dummy 1 = yes 0 otherwise + - + Member to informal institution Dummy 1 = yes 0 otherwise + + - Term of payment Dummy 1= delayed 0 otherwise + - - Frequency of Extension contact Continues Number of visit - - + Frequency of transaction Continues Number of transaction + + - 17 4. Results: Description(continues var. ) Variables Parti. (N = Non- parti. Total(N=342) 120) (N=222) Mean (Std) Mean (Std.) Mean (Std.) t-value
Age 40.76 41.57 (12.53) 41.28 (12.34) 0.58
(12.02) Family size 3.95(0.33) 3.97(0.28) 3.96(0.30) 0.43 Formal year of schooling 6.53 (3.32) 5.82 (3.37) 6.17 (3.34) -2.32**
Total Annual income 63228.78 52397.82 56198.72 -4.21***
(3049.48 ) (933.00) (23269.27 ) Landholding size 1.86 (0.63) 1.61(0.58) 1.70(0.60) -3.59*** TLU excluding oxen 9.75 (1.81) 9.41(1.69) 9.52(1.73) -1.67* Number of oxen owned 2.20 (0.49) 2.14(0.37) 2.16(0.42) 1.27 Distance from main road 4.05 (1.13) 4.08(0.95) 4.07(1.01) 1.30 Cost of farm inputs 23328.66 26051.54 25096.14 1.14 (8745.57) (25389.64) (21122.69) No extension contact 5.30(0.57) 5.27(0.50) 5.65(0.79) -0.57 Descriptive (Dummy var.) Variable Category Parti-(N = Non-part- Total(N 120) (N=222) =342) N % N % N % χ 2 value Sex Male 105 87.50% 195 87.84% 300 87.72% 0.08 Female 15 12.50% 27 12.16% 42 12.28% Marital status Married 102 85.00% 193 86.94% 295 86.26% 1.95 Otherwi 18 15.00% 29 13.06% 47 13.74% Off/non-farm Yes 69 57.50% 133 59.91% 202 59.36% 0.77 No 51 42.50% 89 40.09% 140 40.64% Member to info Yes 97 80.83% 195 87.84% 292 85.38% 4.50** institution No 23 19.17% 27 12.16% 50 14.62%
Access to Yes 108 90.00% 195 87.84% 303 88.60% 0.36
information No 12 10.00% 27 12.16% 39 11.40% Access to credit Yes 105 87.50% 170 76.58% 275 80.41% 4.69** service No 15 12.50% 52 23.42% 67 19.59% Membership to Yes 113 94.17% 168 75.68% 281 82.16% 21.67** cooperatives No 7 5.83% 54 24.32% 61 17.63% * 19 Descriptive……. • Reasons for participating in malt barley contract farming
Participants reason for joining malt barley CF Frequency of parti- HH
Provide me with farm inputs 37 30.8
Reduce production and marketing risk 31 25.8
Access to ready market 24 20.1
Access to credit service 15 12.5
Access to technical assistance 13 10.8
Total 120 100
20 Descriptive……. • Reasons for not participating in malt barley contract farming Nonparticipants reasons for not Frequency Percent of non- participating joining in malt barley CF household Lack of enough land 45 20.3
It increase debt on me 39 17.6
Lack of transparency 63 28.4
Contract default and dispute 52 23.4
Lack of awareness about CF 22 10.4
Total 222 100.0
21 4.2. Econometric Results (PSM estimation results) Factors affecting participation in MB CF and its effect on hh income PARTCF. Coefficient Robust Std. Err AGEHH -0.004 0.010 SEXHH 0.104 0.374 FYSHH 0.113** 0.055 FAMSIZE -0.523 0.438 LAHSIZE 0.641*** 0.228 TLU(exclude oxen) 0.073* 0.043 NUMO 0.121 0.286 COFI -0.006 0.008 OFNFI -0.088 0.247 DSTWR -0.094 0.120 ACINFO 0.329 0.418 ACCRT 0.450** 0.221 FEXC 0.144 0.245 MACO 1.527*** 0.434 Cons. -2.859 2.076 Number of observation = 342 probability >chi 2 = 0.000 LR chi2(14) = 39.33*** pseudo R 2 = 0.090 Log likelihood Ratio = -201.95 22 PSM results…
• Setting of common support region: it was set at the min and max propensity score of participant and non-participant.
e AINCOME Unmatched 63228.78 52397.82 10830.96 2574.21 4.21
ATT 62861.79 53160.97 9700.82 3272.45 2.96
26 Trivariate Probit model result Variable Self-enforcement Private enforce. Legal enforcement Coeff. Str. Err Coeff. Str. Err. Coeff. Str. Err. Age of HH -0.004 0.011 0.027*** 0.011 -0.014 0.011 Marital status 0.267 0.467 0.385*** 0.151 -0.926* 0.513
No_ of ext contact -1.211* 0.740 -1.574* 0.923 3.855*** 1.225
Member to coop 0.328 0.412 -0.592* 0.352 0.471 0.396 Member to IFIT 0.528* 0.312 0.153*** 0.027 -0.372 0.307 AMKT Info -0.242 0.387 0.779* 0.443 0.334 0.440 Distance to buyers 0.075 0.063 -0.053 0.058 -0.040 0.061 Term of payments -0.353 0.371 0.349** 0.049 -1.504*** 0.399
Length of r/ship 0.162** 0.075 -0.022 0.071 0.134*** 0.052
and member to AC has +Ve and significant effect on HHP in MB CF.
28 Conclusions… The PSM result shows: HH who participated in MB CF had 9700.82 Birr of annual income higher than non-participant HH.
The TPM result indicates: HH choice self and private enforcement is
more common than the legalities CEM in the study area.
Since, legality enforcement producer is damage the relationship b/n
household and agribusiness firms.
29 5.2. Recommendations Study recommends promotion of malt barley CF participation in the study area
The provision d/t educational opportunities should be strengthened in
the study area.
Giving awareness and training for households how to improve their
land fertility via terracing, compost and manure.
Increasing adoption of improved livestock technologies should be
strengthened.
Providing credit by reducing credit procedures like collateral and
30 expand FI in rural area. Cont.… To make minimize breach, the agreement at constitute least SH farmers, agribusiness firms, and district and kebeles authority.
To minimize the contract breach there is a need to facilitate frequency
of extension contact, and access to agri. cooperative.
It is better if gov’nt and other concerned agents obey suitable
The Role of Small and Medium Agrifood Enterprises in Food Systems Transformation: The Case of Rice Processors in Senegal: FAO Agricultural Development Economics Technical Study 10
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