INSTITUTIONAL ARRANGEMENTS, INVESTMENTS IN, INCOME DIVERSIFICATION, COST EFFICIENCY AND IMPACT OF SUSTAINABLE AGRICULTURAL INTENSIFICATION PRACTICES: EVIDENCE FROM THE ETHIOPIAN CENTRAL HIGHLANDS

Abstract

This study investigated the determinants of investments in SAIPs including institutional arrangements, the drivers of income diversification; evaluate the impacts of SAIPs use on net farm income and examine the cost efficiency of smallholder farmers in the Ethiopian Central Highlands. Qualitative data collected from 12 focus group discussions and 51 key informants were used to investigate institutional arrangements. Data were collected from 385 farm households and 1465 plots to identify the determinants of choice decisions to invest in SAIPs, and impacts of SAIPs on net farm income, to investigate the drives of income diversification and examine cost efficiency of cereal producing farmers. Both descriptive and inferential statistics were used to analyze the data. Institutional analysis and development (IAD) framework was used for the analysis of institutional arrangements. Multivariate probit model was used to examine the determinants of investments in SAIPs and income diversification activities. Ordered probit and fractional response models were used to investigate the determinants of intensity of investments in SAIPs and income diversification activities, respectively. Multinomial endogeneous switching regression was used for impact evaluation. One-step stochastic cost frontier and cost inefficiency model were used to investigate the cost efficiency and its determinant factors. Result of institutional analysis revealed that most of the agricultural policies and strategies are not sufficiently concrete to facilitate investments in SAIPs. Three main types of institutional arrangements were identified as critical for fostering integration to implement SAIPs, namely normative, ideational and incentive. The result further revealed that these arrangements were project-based and lack continuity, and influenced by frequent organizational reforms and lack of exit strategies. Results of the multivariate probit model reveal that that some SAIPs are complementary while others are substitutable, and the factors had heterogeneous impacts on the choice decisions of farmers to invest in multiple SAIPs. Results further reveal that variables such as crop income, livestock holding, access to extension and credit services, income diversification, membership to agricultural cooperatives and agricultural commercialization cluster (ACC) are important in determining choice decisions and extent of investments in multiple SAIPs. SAIPs were dominated by external inputs including inorganic fertilizers (84%), pesticides (69%) inproved seeds (47%), and sustainable practices including drainage (56%) and soil conservation (56%). Results of multivariate probit model of the drivers of income diversification revealed the interdependence of choice decisions to participate in multiple income sources. Income diversification was dominated by staple crops (93%) followed by livestock (54%) and non-farm (23%) whereas diversification into other non-farm sources, forest and off-farm consititute 18%, 12% and 7%, respectively. Results show that 67% of farm households were engaged in more than one income generating activities. Multivariate probit and fractional response model results reveal that age, education, livestock and land holding, food shortage, investment in SAIPs, rainfall and maximum temperature, joint household decision-making, ACC, income, and study sites significantly impacted the choice and extent of income diversification. Results of the impact analysis indicate that use of improved seeds, inorganic fertilizers and soil conservation combined yielded an average net farm income of 8572 Birr/hectare, representing a 36% increase, but a lower gain compared to other combinations such as improved seeds and inorganic fertilizers, and inorganic fertilizers and soil conservation practices yielding an average net farm income of 44889 Birr/ha and 40092 Birr/ha, representing a 188% and 142% increase, respectively. Results of stochastic cost frontier reveal that cereal producing farmers can reduce the production cost by 13% with the current state of technology without reducing xix the current level of output. Results also show that combined cost of labor and oxen power constituted the highest (44%) share of total production cost followed by cost of land (38%). Results highlight that investment in a combination of manure, drainage and soil conservation had a cost reduction effect on the cost frontier. Results of stochastic cost frontier further reveal that sex, education, family size, cooperative membership, ACC, plot distance, livestock, land security status, income diversification and access to credit positively and significantly impacted cost efficiency of production. So, addressing institutional factors, demographics, asset ownership, diversification activities and weather conditions is indeed crucial for the effective and wider implementation of SAIPs, income diversification and cost efficiency improvement. Based on the findings of this study, it can be recommended that complementarity between agricultural practices and diversification activities, and factors that positively determine investments in sustainable practices and participation in income diversification should be taken into consideration in agricultural policies. This can also be done by developing concrete policies, formulate clear, actionable and specific strategies, and promote long-term institutional arrangements to ensure continuity and sustained production and impact.