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Journal of Agricultural Economics and Rural Development

Vol. 6(2), pp. 842-850, August, 2020. © www.premierpublishers.org, ISSN: 2167-0477

Research Article
DETERMINANTS of SMALLHOLDER POTATO FARMERS’
COMMERCIALIZATION in CENTRAL HIGHLANDS of
ETHIOPIA
Daniel Hailu
Department of Agricultural Economics, Ethiopian Institute of Agricultural Research (EIAR), P.O. Box 2003, Addis Ababa,
Ethiopia.
Email address: danielhailu19@yahoo.com/dahagm19@gmail.com

Ethiopian agricultural sector is dominated by traditional technologies dependent on low input,


rain-fed and mixed farming. A shift from subsistence-oriented production to market-oriented
agricultural production is essential to meet the food needs of a growing and urbanizing
population. The study was carried out in Central Highlands of Ethiopia to determine the level of
household commercialization index (HCI) and to identify factors that determine variation in the
level of commercialization. The study used household level cross sectional data collected from
196 smallholder farmers selected by multistage sampling technique using a structured
questionnaire. Output commercialization indices were derived for all the participating farmers
and the mean HCI during the survey period was 61 percent. Tobit regression model were
employed to determine factors that affect smallholder commercialization. The model revealed
that level of commercialization was positively and significantly affected by higher levels of
potato production, educated household heads and household heads who owned larger number
of livestock (TLU) whereas household heads with highest family size, old aged household heads
and distant market from farm negatively and significantly affected commercialization. The study
concludes that smallholder farmers have a great potential for HCI that can be developed.
Younger peoples are comparatively more business-minded, produced beyond home
consumption and participated in selling than their older counterparts. Nowadays the farming
population is growing older and younger peoples are migrating to urban areas choosing city
life. Therefore, attracting the young generation to engage in agriculture is necessary. The study
suggested the need for policies to encourage the participation of young peoples in agriculture
sector and the development of market facilities in the area. Since the consumer demand is
shifting from fresh tubers to processed products the study also recommends the policy to
encourage farmers to sell processed products than fresh tubers.

Key Words: Commercialization, commercialization index, Smallholders, Potato, Determinants, Market participation,
Ethiopia.

INTRODUCTION

The world’s population currently (2020) reached 7.8 billion agriculture dominated with traditional technologies
and about 81 million people will be added to the world’s accounted for about 95 per cent of the output (Pender et
population every year (Worldometer, 2020). The report al. 2004). A small-scale farmer produces more for their
shows that 56.2% of these populations live in urban areas. own consumption and participates in the market as both
Meeting the food needs of a growing and urbanizing buyers and sellers.
population will be difficult for the world’s agricultural
production and trading systems in coming decades. In Market-oriented agricultural production by these farmers to
Ethiopia, small-scale subsistence-oriented farmers improve productivity, economic development, social
dependent on low input, rain-fed and mixed farming welfare, income distribution and food security of
DETERMINANTS of SMALLHOLDER POTATO FARMERS’ COMMERCIALIZATION in CENTRAL HIGHLANDS of ETHIOPIA
Daniel H. 843

developing countries is a challenge and need a policy


intervention. Therefore, to shift subsistence-oriented Potato (Solanum tuberosum L.) is the third most important
production to market-oriented agricultural production, a food crop after rice and wheat for human consumption and
well-functioning policy options is important. over a billion people on earth eat potatoes (Derek Stewart
and Gordon McDougall, 2012). According to FAO (2009)
Smallholder commercialization is part of an agricultural potato is grown in more than 125 countries and hundreds
transformation process in which individual farms shift from of millions of people in developing countries depend on
a highly subsistence-oriented production towards more potatoes for their survival. From 2005, for the first time, the
specialized production targeting markets both for their developing world’s potato production exceeded that of the
input procurement and output supply (Jaleta et al., 2009). developed, world developing countries are the world’s
Commercialization of agricultural systems leads to greater biggest potato producers and importers FAO (2008).
market orientation of farm production; progressive Potato has been highly recommended by the Food and
substitution out of non-traded inputs in favor of purchased Agriculture Organization (FAO) as a food security crop as
inputs; and the gradual decline of integrated farming the world faces not only uncertainties in food supply, but
systems and their replacement by specialized enterprises. also steady hunger rates, a growing population, and an
Agricultural commercialization can broadly be seen from increasing demand for food (FAO 2009).
two perspectives: a rise in the share of marketed output
and of purchased inputs per unit of output (Jaleta et al. Ethiopia is one of the principal potato producing countries
2009). Commercialization of smallholder farming can bring in Africa and probably displays a unique position for having
about benefits to rural based households. Certain factors the highest potential area for cultivating potatoes (Tadesse
influence its potential success or a farm household’s et al. 2018). Over I.3 million highland farmers could grow
decision to participate in the market is put in place. Factors Potatoes in Ethiopia. The Ethiopian highlands are densely
determining smallholder commercialization can be broadly populated and home to millions of smallholder farmers.
categorized as external and internal. External factors are The area under potato production in Ethiopia in the year
beyond the smallholder’s control. (Von Braun et al., 1994; 2016 was about 70,131 hectares with an average national
Pingali and Rosegrant, 1995; Pender et al., 2006). On the yield of 134.5 quintal (1.3 tons) per hectare for the main
other hand, factors like smallholder resource endowments cropping season and per capita consumption in 2016 was
are household specific and considered to be internal 10.3 kg per person.
determinants (Jaleta et al., 2009).

Figure 1: Trends of potato production, population and per capita consumption.


1,000,000,000
900,000,000
800,000,000
Production (Kg)

700,000,000
600,000,000
500,000,000 Production (kg)
400,000,000 Population
300,000,000
200,000,000 per capita consumption
100,000,000
-
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Production Year

Source: Own computation, data from CSA (2005-2016).

Potato can play an important role in improving food Despite its importance as a staple food and in combating
security and cash income of smallholder potato growers in hunger and poverty, potato has been neglected in
Ethiopia. Potato produces more dry matter per hectare agricultural development policies for food crops. Potatoes
than the major cereal crops in the world, more protein per are commonly regarded as a bulky, perishable commodity
unit area than any other crop except soybeans and more with high transport costs and limited export potential,
food per unit of water than any other major crop. It’s confined mostly to cross-border transactions. The
relatively short crop cycle (3-4 months) and water efficient increased demand in the food processing industry acts as
qualities further magnify potato’s use value in a major driving force behind the growth of the potato
intensification and mitigation of prevailing climate change market. Therefore, study on agricultural sales play an
challenging long cycled cereals.

DETERMINANTS of SMALLHOLDER POTATO FARMERS’ COMMERCIALIZATION in CENTRAL HIGHLANDS of ETHIOPIA


J. Agric. Econs. Rural. Dev. 844

important role in improving food security and cash income Method of Data Analysis
of smallholder potato growers in Ethiopia.
Descriptive statistics, Household Commercialization Index
Objectives of the Study (HCI) and Tobit model were used to analyze the primary
data collected from smallholder household heads using
The general objective of this study was to describe the structured questionnaire. Descriptive statistics was used to
characteristics of farm household’s market participation in describe and analyze the socioeconomic characteristics of
potato and explore strategies to promote smallholder small holder farmers. The HCI was used to determine
farmers’ participation in market oriented potato in the study household level of commercialization. Finally, Tobit model
area. The specific objectives were: was used to analyze factors determining level of potato
 To describe the characteristics of farm commercialization.
household’s market participation in potato
 To determine the level of the smallholder farmers’ Descriptive Statistics
market participation (HCI).
 To identify factors that determines the level of The collected data from 196 smallholder farmers are
commercialization. analyzed to describe the relevant demographic, social,
economic and farm specific features of the farmers.

MATERIALS AND METHODS Household Commercialization Index (HCI)

The Study Area To analyze the commercialization level of households,


household agricultural output marketed index was used as
The study was conducted in central highlands of Ethiopia. proxy of degree of commercialization. The index of
The district is known in potato production and source of commercialization is calculated by taking the ratio of total
potato supply for Addis Ababa and other urban value of agricultural sales in the market by household in a
markets. Welmera is the district where the study was year to total value of agricultural production by the same
conducted and located 29 km away from the capital city of household in the same year. According to Von Braun et al,
Addis Ababa. The area ranges in elevation from 2,000 to (1994) HCI will be computed by:
3,000 masl. Total value of crop sales
Market Participation / HCI / 
Total value of crop production
Sampling Techniques

Multistage sampling procedure combining both purposive The index measures the extent to which household crop
and simple random sampling was used to identify farmers production is oriented toward the market. A value of zero
to include in the sample. District and peasant associations would signify a totally subsistence oriented household
were selected purposively based on potential potato where a value closer to 1 implies the higher degree of
production, cultivated land and number of potato farmers. commercialization.
Finally, respondents were selected proportionally from
each peasant associations using systematic random A two-limit Tobit regression model
sampling techniques.
Tobit regression model, originally formulated by Tobin in
Sample Size Determination 1958, with a hybrid of the discrete and continuous
dependent variables was used to analyze determinants in
The sample size was computed by Statistics Canada the potato producers’ level of commercialization. The use
(2010): that is a step-by-step approach where, first an of the Tobit model is intuitive because the parameter
initial sample size is calculated and then it is adjusted for estimates will be biased and inconsistent if OLS is used
the population, design effect and the response rate. Based (Gujarati, 2004). This is because OLS underestimates the
on the formulation, sample sizes of 196 respondents were true effect of the parameters by reducing the slope. The
selected through random sampling. degree of bias will also increase as the number of
observations that take on the value of zero increases. This
Data Type and Sources suggests that OLS regression was not appropriate and
estimation with OLS would have led to biased parameters
Data was obtained from both primary and secondary estimates. Probit and Logit models could not be used in
sources using appropriate data collection instruments. this case because they are only used when the dependent
Primary data was collected from 2015/16 cropping season variable takes two values (Gujarati, 2006). Tobit model
using personally administered structured questionnaires. was used because the dependent variable
Secondary data was gathered from country's statistical commercialization index is censored and treated as
report, crop variety register, annual reports, research continuous values that range between 0 (subsistence
papers, website, books and unpublished reports. producers) and 100 (fully commercialized farmers),

DETERMINANTS of SMALLHOLDER POTATO FARMERS’ COMMERCIALIZATION in CENTRAL HIGHLANDS of ETHIOPIA


Daniel H. 845

thereby avoiding crude distinction between Where Yi* is latent variable representing the HCI scores,
commercialized and non-commercialized household.  0,  1,...,  n are parameters to be estimated, and HCI
Therefore, Tobit regression model offered the most is, Household Commercialization Index of the ith farmer. Zi
preferred option. - factors that affect commercialization level. And ui - an
error term with mean zero and variance  (ui ~ IN (0, 
2 2
The study followed Makhura (2001) and Bellemare and
Barrett (2006) who used Tobit model to specify a market )) and HCI scores for the smallholder potato producers
participation decision function. The Tobit model is range between zero and one.
specified in Maddala (2001) and Hobbs (1997) as follows: 1, if Yi* ≥ 1
Y* = βx + µ -------------------------- (1) Yi = Yi*, if 0< Yi* < 1
Where, y* is the latent variable, and x is a vector of
independent factors, β is the corresponding vector of 0, if Yi* ≤ 0 ---------------------- (3)
parameters and µ is the error term. Two-limit Tobit model allows for censoring in both tails of
Following Amemiya (1981) and Endrias et al., (2013), the the distribution (Greene, 2003). The log likelihood that is
two-limit Tobit model was defined as; based on the doubly censored data and built up from sets
n of the two - limit Tobit model is given by;
Yi*HCI   0    j zij  ui -------------------------- (2)
j 1

 loi  X 'i   1  Yi  X 'i    l1i  X '  


ln L   ln      ln . 
      ln 1   (

i
)  ------------------ (4)
Yi  Loi   yi  yi *  Yi l1i  
Where Loi = 0 (lower limit) and L1i = 1 (upper limit) where φ and ϕ are normal and standard density functions.

The Marginal Effects

Tobit model parameters cannot be directly interpreted as 3) The probability of being between the limits: The
changes in the dependent variable brought about by influence of explanatory variables on the probability of
changes in independent variables. A Tobit model provides dependent variable to fall in the uncensored part of the
a single coefficient for each independent variable despite distribution.
two distinct types of dependent variables censored and  Pr( y  0 |  )  
uncensored. The marginal effects also account for the   ( )            (7)
probability of being commercialized.   

The marginal effects of changes in explanatory variables


from Tobit regression analysis were computed following RESULTS AND DISCUSSION
the procedure proposed by McDonald and Moffitt (1980)
and later developed by Gould et al. (1989). McDonald and Descriptive Results
Moffitt showed that a change in the independent variable
x has three effects on the dependent variable: The This sub-section presents the demographic and
marginal effects of these conditional expectations socioeconomic characteristics of the 196 respondents.
respectively are given as: The results of descriptive statistics analysis indicated that,
the majority of respondents were relatively old. Sampled
1) The unconditional expected value of the dependent age of respondents was between 18 to 73 years. About
variable: The marginal effects for the unconditional 52.5% of the total sampled HHs had at least 6 persons in
expected value of the dependent variable. the household. The results of this study show that only
E ( y |  )  27% of the farmers in the study area received off-farm
 ( )                (5) income. Average livestock holding per household in the
  study area was 8.7 TLU. Contracted land (rented,
sharecropped, gifted or borrowed) covered 51.2 percent of
2) The expected value of the dependent variable the potato farm in the production period which is
conditional upon being between the limits: The substantially larger than the size of owner-operated land.
influence of explanatory variables on the expected value About 52 percent of respondents participated in farmer
of the dependent variable conditional on it being larger groups or cooperatives that facilitate agricultural
than the lower bound. production and marketing process.
E ( y |  )
                   (6) In the production period, 98.5 percent of the potato
 producer participated in the markets. As shown in the
Table 1, 85 percent of the farmers sold potato during the

DETERMINANTS of SMALLHOLDER POTATO FARMERS’ COMMERCIALIZATION in CENTRAL HIGHLANDS of ETHIOPIA


J. Agric. Econs. Rural. Dev. 846

postharvest period (November to February) and also 91% Aggreg 108,52 45,32 437,2 1,344, 1,935, 69
of the marketing performed on the farm. ate 0 5 76 825 946
Percent 6 2 23 69 100
Table 1: Preferred period of selling by farmer age
Time of selling Freq. Percentage
March 14 7
April 7 4 Household Level Of Commercialization
October 7 4
November 40 20 The degree of household commercialization in the study
December 36 18 area ranged from 0 to 1 across the sampled households.
January 56 29 As shown in Table 3, about 72% of households found to
February 36 18 be at higher level of commercialization selling on average
Total 196 100 70% of the total quantity of the produce, whereas 7% of
Source: own computation the households are at low commercialization level, with
average sell of 20% of the produce, respectively. In
Why Farmers Grow Potato? The statistical summary general the average level of household commercialization
provided in Figure 2 shows that the larger proportion (86%) in the study area was found to be 61%, which is
of the farmers produces potato for selling purpose, which significantly above the national commercialization
indicates producers in the area were business-minded. average.

Table 3: Household Level commercialization Index


Figure 2. Target for growing potato (HCI)
Level of Freq. Percentage HCI
For Commercialization Min Mean Max
For
Consumpti Consumpti Low 14 7.14 0.00 0.20 0.30
on on and Medium 40 20.41 0.31 0.43 0.50
1% selling High 142 72.45 0.51 0.70 1.00
13% Total 196 100.00 0.00 0.61 1.00
For Selling
86%
Econometric Results and Discussions

Determinants of smallholder commercialization

Tobit regression model estimated to assess the


The average annual crop harvest of the households was determinants of commercialization. As shown in the table
0.99 ton. As shown in the table 2 below, 69% of the total 4, among the farmer-specific characteristics, higher levels
harvest of potato was marketed. High quantity of harvest of potato production, educated household heads and
could lead households to higher level of household heads that possess large number of livestock
commercialization. (TLU) were a positive and significant effect on
commercialization. However, household heads with
highest family size, old aged household heads and distant
Table 2: Household Decision on Production market from farm were a negative and significance effect
Potato Allocation of Production (Kg) Percentag on commercialization.
Varietie Quantit Quant Quant Quanti Quanti e
s y ity ity ty sold ty (sold/prod
consu spoile Left produc uced) Table 4: Tobit regression results (determinants of
med d for ed smallholder commercialization)
seed Variables Coef. (HCI) Std. Err. t P>|t|
Belete 3,200 1,800 16,80 48,400 70,200 69 Age of HHH -0.2969994*** 0.0912179 -3.26 0.001
0 Production of 0.0562684** 0.0241355 2.33 0.021
Digem 250 100 2,700 4,650 7,700 60 Potato
egn Tropical 0.0428146*** 0.0123548 3.47 0.001
Guasa 1,600 0 9,000 16,000 26,600 60 Livestock Unit
Guden 100,32 42,12 399,1 1,245, 1,786, 70 (TLU)
e 0 5 00 301 846 Family Size in -0.0409379* 0.0214026 -1.91 0.057
Jalene 3,000 1,300 7,376 25,924 37,600 69 the HH
Tolcha 150 0 2,300 4,550 7,000 65

DETERMINANTS of SMALLHOLDER POTATO FARMERS’ COMMERCIALIZATION in CENTRAL HIGHLANDS of ETHIOPIA


Distance to -0.0400501** 0.0180554 -2.22 0.028 sell their product to the market. Therefore, higher levels of
the nearest crop production enhanced smallholders’ market
market participation. This result is in a line with previous studies
Education 0.0093938** 0.0045515 2.06 0.040 conducted by Tadele et al. (2017) and Gebreslassie et al.
level of HHH (2015).
Membership 0.0379705 0.0252467 1.50 0.134
to Education Level of the Household Head: The result
cooperatives showed positive and significant relationship between the
Land tenure -0.0243117 0.0249402 -0.97 0.331 educational status of the household head and the decision
status to participate in potato market at 5% significance level. A
Market price 0.0084667 0.0119151 0.71 0.478 unit change in the years of education level of households
of potato would increase the probability of a farmer to participate in
Credit service 0.0038328 0.0031188 1.23 0.221 the market by 0.9 percent the mean level of
Off-farm 0.0005410 0.0015594 0.35 0.729 commercialization by 0.8 percent. Educated producers
income more attained on the training and understand faster those
Note: *** Significant at 1%, ** Significant at 5% and * complex farming decisions and more effective in their
Significant at 10% processing of technical knowledge. Furthermore, such
farmers adopt improved technologies faster because they
The estimated parameters on the Tobit model presented understand the benefit associated with the technology,
in Table 4 only indicate the direction of the effects that the hence increasing the production and so that they can
variables have on CHI levels. The results were subjected produces more surpluses for market. Thus more years of
to post estimation test using marginal effect analysis in schooling of the household head would lead to higher
order to estimate the trivial change from each factor that participation in the market. The result is in conformity with
influences commercialization. the findings of Tadele et al. (2017) and Aman et al. (2014)
that states education increases the ability of farmers to get
The marginal effect analysis and analyze relevant market information which would
improve the managerial ability of the farmers in terms of
Quantification of the marginal effects of these variables is better formulation and execution of farm plans, and
important in order to estimate the change that will occur acquiring better information to improve their marketing
with respect to a change in one unit of that variable. performance.

Table 5. The marginal effects of change in Possession of Livestock: Number of livestock owned in
explanatory variables (HCI) TLU was found to positively and significantly affect
Variables dy/dx commercialization at 1% significant level. A unit change in
the number of oxen owned by households would increase
∂ E (y|x) ∂ E (y*|x)
the probability of a farmer to participate in the market by
Age of HHH -0.2937 -0.2760
4.2 percent the mean level of commercialization by 4
Production of Potato 0.0556 0.0523
percent. Results revealed that livestock holding size,
Tropical Livestock Unit 0.0423 0.0398 which is a proxy for measuring wealth status of household
(TLU)
head, enables farmers to overcome liquidity constraints to
Family Size in the HH -0.0405 -0.0380 purchase and apply inputs and implement correct farm
Distance to the nearest -0.0396 -0.0372 management practices on time and increases the ability to
market produce more as compared to non-holders. This result has
Education level of HHH 0.0093 0.0087 been supported by the finding of Tadele et al. (2017) and
Membership to 0.0375 0.0353 Aman et al. (2014) who found livestock can positively
cooperatives contribute to crop production by providing natural fertilizer,
Land tenure status -0.0240 -0.0226 oxen used for traction power and source of cash to finance
Market price of potato 0.0084 0.0079 purchased inputs such as seed and fertilizer.
Credit service 0.0038 0.0036
Off-farm income 0.0005 0.0005 Family Size: Household size measured in Adult-
Equivalent (AE) affects level of participation in marketing
Potato Production: Value of total farm outputs (potato) negatively and significantly at 10% significant level. A unit
produced had a positive and significant effect on change in the number of family size would decrease the
commercialization at 5% significant level. A unit change in probability of a farmer to participate in the market by 4
the production of potato would increase the probability of percent and the mean level of market participation by 3.8
a farmer to participate in the market by 5.6 percent and the percent. Results revealed that households with more
mean level of commercialization by 5.2 percent. Results members and higher dependency will consume more of
revealed that as the level of potato production increased, the product. The negative impact of household size
the amount of marketable surplus supplied to market is indicated that the higher the family size, the lower will be
also increased. This is because when a farmer produces the amount of grain marketed. The result is consistent with
surplus of grain over food consumption, to reduce the that of Aman et al. (2014) and Benjamin et al. (2014) who
postharvest losses or perishability they are obligated to
DETERMINANTS of SMALLHOLDER POTATO FARMERS’ COMMERCIALIZATION in CENTRAL HIGHLANDS of ETHIOPIA
J. Agric. Econs. Rural. Dev. 848

found households with large family sizes need to feed their commercialization average. Among the farmer-specific
family first and take the remaining small amount to the characteristics, higher levels of potato production,
market. educated household heads and household heads that
possess large number of livestock (TLU) were a positive
Age of the household heads: Age of household heads and significant effect on commercialization. However,
which was measured in years was negatively and household heads with highest family size, old aged
significantly affects level of household’s potato household heads and distant market from farm were a
commercialization at 1% significance level. A unit change negative and significance effect on commercialization. The
in the age of HHHs in an increase order would decrease study concludes that smallholder farmers have a great
the probability of a farmer to participate in the market by potential for commercialization that can be developed in
29.4 percent the mean level of commercialization by 27.6 the study area.
percent. Younger farm household heads participated more
in output markets than the older farmers. This is because The farming population is growing older because young
younger peoples are comparatively more educated than people increasingly chose city life. Therefore, the study
the older farmers, had more contacts with extension agent suggested the need for policies to encourage the
and avoid pre and post-harvest losses and are more participation younger generation to engage in agriculture
business-minded to participate in selling than their older sector and the development of market facilities in the area.
counterparts. The finding was consistent with Abafita et al. Nowadays the consumer demand is shifting from fresh
(2016) and Mabiratu Dangia et al. (2019). tubers to processed products; the study also recommends
the policy to encourage farmers to sell processed products
Distance of the market: The time taken in minutes of than fresh tubers.
walking time to the nearest market had negatively and
significantly affected the amount of potato sold in the
market at 5% significant level. A unit change in the REFERENCES
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DETERMINANTS of SMALLHOLDER POTATO FARMERS’ COMMERCIALIZATION in CENTRAL HIGHLANDS of ETHIOPIA


J. Agric. Econs. Rural. Dev. 850

Accepted 24 September 2020

Citation: Daniel Hailu (2020). Determinants of Smallholder Potato Farmers’ Commercialization in Central Highlands of
Ethiopia, Journal of Agricultural Economics and Rural Development, 6(2): 842-850.

Copyright: © 2020: Daniel H. This is an open-access article distributed under the terms of the Creative Commons
Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original
author and source are cited.

DETERMINANTS of SMALLHOLDER POTATO FARMERS’ COMMERCIALIZATION in CENTRAL HIGHLANDS of ETHIOPIA

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