Vol - 16, Issue - 4
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Journal of the Austrian Society of Agricultural Economics (JASAE)
Journal ID : JASAE-02-06-2020-28
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Title : The Impact of Contract Farming on Technical Efficiency in Ethiopia’s Smallholder Sesame Production
by Mekdelawit Yeshitila, Isriya Bunyasiri, Prapinwadee Sirisupluxana, Auttapol Suebpongsakorn,
Abstract : Ethiopia has been struggling in the international Sesame market due to low productivity. Therefore, contract farming (CF) has been introduced as a new institutional arrangement to improve productivity. The purpose of this paper is to investigate the impact of CF on smallholder’s technical efficiency (TE) using cross-sectional data from 122 CF and 261 non-CF sesame farmers in Ethiopia. A data envelopment analysis (DEA) is used to estimate sesame production efficiency. The impact of CF on technical, allocative, and economic efficiency was assessed using propensity score matching (PSM). A Rosenbaum bound approach was used to see to what extent the PSM results is sensitive to hidden bias problem. Based on the DEA result, CF participants have an average TE score of 0.68 and non-CF has 0.56 under constant return to scale. This indicates that to increase TE, CF participants and non-participants can reduce the amount of input use by 32% and 44%, respectively. Farmers can increase TE under variable return to scale by reducing input level on average by 23% and 32% for CF and non-CF, respectively. The AE for CF participants is 0.26, while the non-CF participant has an AE of 0.20. The PSM results revealed that contract farming increases technical efficiency by 11% and economic efficiency by 8.7%. AE is increased by 8% due to CF. Therefore, contract farming can be used as an institutional arrangement to improve production efficiency

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