Economic efficiency and marketing performance of vegetable production in the eastern and central parts of Ethiopia

Abstract

The objective of this thesis is to examine the production and marketing performance of vegetables in the eastern and central parts of Ethiopia. Efficiency estimation and identification of their determinants in mixed-crop and market-driven (vegetables) production systems was performed in two districts of eastern Ethiopia. A significant economic inefficiency was observed for both systems, with lower efficiency scores for the market-driven farm production. The improvement in efficiency calls for institutional capacity building that enhances asset and capital formation, extension and credit services, consumption and family planning know-how and crop specialization. Results based on the comparison of the two production systems show that lower economic efficiency scores for the market-driven production is attributable to limited access to capital markets, high consumer spending, and large family size. Furthermore, an assessment of the marketing performance of vegetables is conducted. Since most produce sales are based on relational contracting with traders, the study of market performance encompasses an analysis of grower-trader marketing contract enforcement and factors influencing it. Results show that despite its poor performance, contract enforcement is mainly due to mutual trust and brokers' mediation. Information access, trader-specific investments, farmer's age, whether the buyer is a trader, dependency on the trader, relationship duration, transaction frequency, and distance to the trader were found to be the significant factors affecting contract enforceability through brokers. Risks related to perishability and seasonality of supply, illiteracy, and client-buyer's type were found to be the significant factors causing contract breaches by the traders. In addition, traders' produce pricing behavior in the procurement of vegetables from growers is analyzed. Results show that traders capture a significant proportion of the marketing surplus due to market power and audacity to absorb risk with this share varying along the degree of perishability and across cities. In general, the results of this study reveal the existence of considerable economic inefficiency in production, poor contract enforcement, and imperfect competition in the marketing of vegetables. The findings of this study indicate the need for governmental and/or private institutions interventions to improve the production and marketing performance of vegetables by providing the necessary institutional support to the smallholder farmers in the study areas.