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
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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.