The Impact of Credit Repayment Schedule Policy on Competitiveness of Grain Production in Welmera District, Ethiopia

Abstract

In the last few years, agricultural polices were designed to benefit farmers. The agricultural extension program being implemented enabled smallholder farmers to use new agricultural technologies on time and hence increased productivity and output obtained per unit of land. However, credit repayment schedule policy put in place, forced farmers to repay input loans when price of output is very much low. The policy analysis matrix (PAM) was used for this study as a main methodology combined with a seasonal price Index. The study showed Welmera district having a comparative advantage for barley but not competitive while it has only a competitive advantage for tef and wheat. For two reasons farmers did not receive the actual price of grains that was equivalent with the true price. First, the system confirmed the presence of market failure in fertilizer market. Second, domestic cost of seed production was lower than the world price. The data also clearly pointed out how government policy negatively affected private profitability by undervaluing land. The seasonal analysis demonstrated price variability of grains exists in the study area. Moreover, the repayment period for input loan arranged when output prices are at their lowest levels. Therefore, the removal of credit repayment schedule policy would make grain production more competitive if farmers shift the sale of its produce to peak price periods. This call for review of the existing agricultural polices for the benefit of small scale farmers.

Ethiopian Journal of Economics Vol. 14 (1) 2005: pp. 49-78