Analysis of the determinants of small-scale farmers’ grain market participations in Ethiopia: The contribution of transaction costs

Abstract

The paper is based on data collected in 2007/08 by IFPRI on smallholder market participation in Ethiopia from a random cross-section sample of 1577 households, with a focus on staple food grains and the effects of transaction and non-transaction costs on output market participations as a buyer and a seller. The multivariate Probit and multivariate Tobit models were used to identify the determinants of market participation regimes. The results indicated that demographic characteristics of the households (age and dependency ratio), production assets (own and rented-in land and oxen), land characteristics, volume of production, and households income diversification (livestock and non-farm income) affected both sellers and buyers. Transaction costs associated with ownership of donkey and access to road and market explained the variation of market participations. Regional characteristics (distances, agro-climatic conditions, etc.) also highly affected the market participation of the households.

Keywords: Ethiopia; market participation; multivariate Tobit; multivariate Probit; transaction costs