Land as a binding constraint to cluster-based development in Ethiopia: To cluster or not to cluster?

Abstract

As one of the agglomeration models targeting cluster-based rural development, cluster farming has been promoted in Ethiopia and it is already reported to have significant welfare implications, but participation rates are not as high as expected. This study examines the role of land as a constraint to the development of cluster-based development in Ethiopia both using extensive and intensive measures of cluster farming. The study further disaggregates farm households based on their farm size to better understand potential heterogeneities in the relationship between farm size and cluster farming. The paper also documents other household socio-economic and network characteristics that may matter in cluster farming. We use a large-scale farm household data from 3,969 households coupled with some expert insights on cluster farming in Ethiopia. Households in the study areas grow major staples such as maize, wheat, teff, malt barley, and sesame in four main regions of Ethiopia. We employ a double hurdle model to examine both the decision to participate and the extent to which households participate in cluster farming. By extent of participation, we refer to the amount of land and share of land farm households contribute to cluster farming. For robustness purposes, we also estimate the Tobit and Linear Probability Models. We show a positive association between farm size and cluster farming both at the extensive and intensive margins. This relationship turns negative for large amounts of land. This shows that cluster farming increases with farm size up to a threshold beyond which it declines. We also find suggestive evidence that participation rates are lower for small-scale farms, but also declines for large-scale farms. In addition, we show that access to information and network characteristics also matter in enabling cluster farming. The findings of this study are relevant in the framework of plans to upscale the cluster-based development initiative in Ethiopia. Attention to landholding issues is key and may be an important area where policy action can be geared to boost cluster farming. Moreover, our results inform potential targeting plans that aim to increase the participation of small-scale farmers who are usually the intended targets of such programs.