Crop Mix and Rural Household Response to Shocks in Ethiopia: Household Modelling Approach: Evidence from Ada’a Woreda

Abstract

This study assesses the response of rural households to output and input prices as well as
technological changes in mixed crop production in Ethiopia, in the case of Ada'a woreda, by
selecting a sample size of 100 households using a non-separable household modeling approach.
The Cobb-Douglas function is used for the production and utility functions, and major
constraints like land, labor, seed, and fertilizer are considered to find the optimum values that
would enable the household to maximize their utility. The 7 most widely produced crops in the
village were selected (teff, wheat, chickpea, lentil, bean, barley, and maize). The optimal value
exposes that mono-cropping (teff production) is better than multiple cropping to maximize
utility. Output price, factor price, and technology stocks were introduced to see how households
respond and how and to what extent the production, consumption, and welfare of households
are changed. The finding of the study reveals that households tend to leave the agricultural
sector if all input prices are increased by 10%, which is the case when households face a
minimum welfare level. When output prices increase by the same figure, farmers allocate all of
their labor to the agricultural sector. A technological improvement of 20% on teff enables
households to fully engage in agricultural activities and secure the highest utility compared to
other shocks, while other crops are not responsive to technological change. This implies that
stakeholders should focus on improving the method of production of teff in the village. In
addition, the government should get involved in such a way that factor prices shouldn't be
increased beyond a certain point