Does commercialisation drive technical efficiency improvements in Ethiopian subsistence agriculture?

Wondmagegn Tirkaso & Sebastian Hess

The conditions in which increased market participation leads to improved technical efficiency are still not adequately understood. This study therefore investigated farmers’ market participation rates and their predicted technical efficiency scores by performing a two-stage least squares (2SLS) regression analysis using household-level data obtained from the 2009 Ethiopian rural household survey. The predicted efficiency score from the stochastic frontier production function showed that the farmers had a mean technical efficiency score of 40.2%, implying that their output could be increased substantially if improvements were made to existing input mixes. The variables related to educational level and radio and mobile telephone access were positively linked to a farmer’s technical efficiency. The estimated results also indicated that farmers with a higher degree of commercialisation were technically more efficient compared to those with lower market participation. The overall results suggest the importance of increasing the market participation rate of smallholders in order to improve agricultural productivity in rural Ethiopia.