Impact of contract farming participation on the economic efficiency of malt barley farmers in northwestern Ethiopia

Abstract

Contract farming (CF) has been one of the strategies employed to enhance the production and productivity of malt barley and substitute imported malt barley in Ethiopia, in addition to addressing marketing challenges. The predicted results also include satisfying domestic malt barley demand, enhancing farmers’ welfare, and saving the nation’s foreign exchange. Hence, this study evaluated the production efficiency impact of malt barley CF in northwestern Ethiopia. The study was based on the data collected from 398 farmers in two districts, selected using multistage sampling techniques. The probit model showed that CF participation among malt barley farmers was positively correlated with frequency of extension contact, field day, training, cooperative membership, credit, and household size. The maximum likelihood estimator of SPF shows malt barley farm, fertilizer, and oxen power had positive effects on malt barley output. The stochastic cost frontier analysis demonstrated that the total cost of production was positively and significantly impacted by malt barley output and the cost of inputs (labor, oxen, farm, and seed). Propensity score matching (PSM) revealed that CF increased the TE, AE, and EE by 4.52%, 12.34%, and 11.55% for participants, respectively. The findings of this study demonstrate that CF can increase farm households’ TE, AE, and EE, which policymakers and other interested organizations may consider as a different development strategy as long as it is adjusted to local conditions.

Keywords:

• malt barley
• probit model
• contract farming
• PSM
• economic efficiency
• Ethiopia

PUBLIC INTEREST STATEMENT

The production of malt barley has become one of Ethiopia’s fastest-growing industries because of the establishment and expansion of malt and brewery plants supported by expanding beer consumption and a favorable investment. However, the domestic supply of the grain lags far behind the demand. The domestic supply accounts less than 50%. As a result, Ethiopia is a net importer of malt barley. This limited supply is caused mainly by low yield. Theoretically, this can be improved by enhancing efficiency and diffusing technology. In this regard, malt barley contract farming (CF) is introduced as a strategy to increase malt barley yield by enhancing farmers’ production efficiency through technical help and supplying improved technology through financing and price support. This study evaluated the impact of CF on production efficiency of malt barley farmers in northwestern Ethiopia. The finding revealed that CF increased the technical, allocative, and economic efficiencies of malt barley farmers by 4.52, 12.34, and 11.55%, respectively. Therefore, policy makers should introduce CF to non-participants is a better way to improve production efficiency to increase malt barley yield.

Acknowledgments

We expressed our gratitude to the Ministry of Education for funding this study, the North Gondar Agricultural Office for providing general information, the Agricultural Offices of the Dabat and Debark Districts for facilitating data collection and the provision of secondary data, and the farmers who provide primary data.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Authors’ contribution

All authors contribute to the design of the study, data collecting, analysis, and critical review, and they all offer feedback on the paper’s content and organization. The final manuscript has been reviewed and approved by all authors.

Availability of data and materials

All authors declare that the data sets used in this manuscript are fully available upon request from the corresponding author.

Informed consent

Ethical approval and consent to participate does not apply to our study.

Additional information

Funding

Haramaya University was budget sources for this study.

Notes on contributors

Abebe Dagnew

Abebe Dagnew is a lecturer and researcher at University of Gondar. Currently, he is a PhD student of Agricultural Economics at School of Agricultural Economics and Agribusiness, Haramaya University, Ethiopia. He obtained BSc and MSc in agricultural Extension and Agricultural Economics, respectively from Haramaya University. He has teaching and socioeconomic research experiences. He has been also head, department of Agricultural economics (2011-2016) and exam center Coordinator (2016-2019) of University of Gondar, Ethiopia. He has published 13 articles in reputable journals. His research interests include adoption of technology, food security and poverty, production efficiency, and impacts evaluations.