IMPACT OF MALT BARLEY CONTRACT FARMING ON PRODUCTION EFFICIENCY AND ASSET ACCUMULATION: EVIDENCE FROM NORTH GONDAR

Abstract

Barley, including food and malt barley, is one of the major cereals produced by smallholder farmers in Ethiopia. Though malt barley is the fastest-growing industry, its domestic supply currently lags far behind the demand. As a result, Ethiopia is a net importer of malt barley. Recently, contract farming was implemented to address this issue in malt barley-potential areas. It has been one of the strategies utilized to enhance the productivity and production of malt barley and replace imported malt barley, besides solving marketing challenges. The research area is generally asserted to have a low rate of contract farming participation and a low malt barley yield. Given the issues and research gaps identified, this study seeks to evaluate the impact of contract farming on production efficiency and asset accumulation of malt barley farmers in North Gondar Zone, Ethiopia. The data were collected from 398 farmers (189 contract farming participants and 209 non-participants) in two districts, selected using multistage sampling techniques. The data were analyzed using both parametric and non-parametric methods. The probit model outputs show that contract farming participation was positively influenced by extension contact, training, field days, cooperative membership, credit, and household size. The maximum likelihood estimator of the stochastic production frontier shows farm size, fertilizer, and oxen power had positive effects on malt barley yield. The stochastic cost frontier analysis also demonstrated that the cost of malt barley production was positively impacted by output and the cost of inputs (labor, oxen, farm, and seed). The presence of production inefficiency was indicated by gamma values exceeding 70% and 80% for the production and cost frontiers, respectively. The Tobit model revealed that distance to the market directly affects participants' and non-participants' inefficiency. In contrast, it was negatively affected by experience, education level, off-farm, training, and credit. Participants’ inefficiency was negatively influenced by cooperative membership, mobile ownership, and row planting while the household size and extension contact negatively determined the inefficiency of non-participants. The results of the PSM impact analysis show that contract farming increases the economic, allocative, and technical efficiency of malt barley farmers by 11.55%, 12.34%, and 4.52%, respectively. The endogenous switching regression model result reveals that contract farming participation increases the asset accumulation of malt barley farmers by 9652.7 ETB. The results of the study generally xvii supported the idea that contract farming participation has a positive impact on efficiency and asset accumulation. Therefore, policymakers should improve access to extension services (training, credit, and field day), information, rural infrastructures, off-farm engagement, cooperatives, and cheap and easy row planting techniques to capitalize on the positive impact of contract farming on efficiency and asset accumulation of malt barley farmers.