Crop diversification and technology adoption : the role of market isolation in Ethiopia

Abstract

The supply of basic necessities, primarily food, in developing countries is an ongoing concern. A crucial component to improving this situation is access to information on the decision environment and behavior of smallholders in these countries. One challenge facing agricultural households is the lack of effective access for input and output markets. The markets that do exist often fail to facilitate efficient trade between buyers and sellers. Smallholders are forced to adjust their production behavior to compensate for this lack of market access. The purpose of this paper is to examine the crop diversification and technology adoption decisions made by households, in relation to their distance and, by implication, lack of access to a market center. This thesis uses a dataset that contains information on the production systems of Ethiopian smallholders in 2000/2001. The focus of the analysis is on the determinants of chemical fertilizer adoption, crop diversification levels, and crop choices. A simultaneous equation model is used to obtain estimates for the decisions to adopt chemical fertilizer and diversify crop mix in which the endogenous variables are truncated. In addition, a system of five OLS equations is used to explain the shares of land devoted to major categories of crops (primary staple crops; cereals/pulses; oils/spices; fruits/vegetables; and cash crops). The empirical results indicate that Ethiopian smallholders do react to changes in the level of market access by altering their production behavior.