Effects of Crop Commercial Orientation on Productivity of Smallholder Farmers in Drought-prone Areas of the Central Rift Valley of Ethiopia

This paper examines the tradeoff between commercial orientation and crop productivity among smallholder farm households living in drought risk-prone areas of the central rift valley of Ethiopia. The study was built on the hypothesis that there is a one-way causation between commercial orientation and productivity. The relationship between commercial orientation and crop productivity is assessed in a censored simultaneous equation model framework. Results indicate that there is a unidirectional relationship with total factor productivity being influenced by the endogenous commercial orientation factor. The influence of commercial orientation is expounded with the addition of farm and non-farm characteristics. Thus, in priority order, number of non-oxen livestock, commercial orientation, agricultural credit and sex have been important factors positively influencing productivity whereas labor availability for farming, distance and off-farm wage labor employment have been working against increased productivity of the smallholder farm households. However, it was observed that with a shift from commercial orientation criteria to unrestricted level of market participation in crop sales, the type, magnitude and direction of determinant factors have increased emphasizing the seriousness of performance influencing factors along with market participation to the majority of the smallholder farmers. The findings suggest that programs targeted at improving market access have the potential to increase agricultural productivity.