A case study of risk-return tradeoffs in a mixed farming system in highland Ethiopia

Abstract

The role of livestock enterprises as a risk management option for subsistence smallholder farmers in an Ethiopian highland site (Debre Berhan) is examined. Specifically, the paper addresses the issue of whether livestock enterprises can be an income stabilizing agent in a traditional mixed crop and livestock farming system representative of important parts of the Ethiopian highlands. The analysis is based on the application of a stochastic farm-firm linear programming model. Farm income is the stochastic variable of the model. Technological and resource constraint sets which approximate those of representative smallholders in the Debre Berhan area are incorporated into the empirical framework. The data inputs to the model have been collected in field surveys conducted by ILCA (International Livestock Centre for Africa) covering the period 1979–1983. Linear programming solutions are obtained for three situations: 1. (1) A set of solutions where traditional farm technologies apply. 2. (2) A set of solutions where farmers can use one ox, rather than the traditional pair, for cultivation. 3. (3) A set of solutions where farmers can keep a relatively high-yielding crossbred cow for milk production to raise cash incomes. The main empirical results are: 1. (1) In the traditional farming system, increasing sheep flock sizes reduces income variation. 2. (2) The single ox-traction technology offsets income variation by increasing mean income as a result of its higher efficiency as compared to the oxen-pair traction technology. 3. (3) The adoption of the crossbred technology results in a lower income coefficient of variation. This is mainly due to its high mean income. However, due to the labour-intensive nature of the crossbred cow enterprise, labour becomes expensive. As a result, a tendency for crop specialization arises.