The Role of Agricultural Cooperatives in Risk Management and Impact on Farm Income: &amp;lt;i&amp;gt;Evidence from Southern Ethiopia&amp;lt;/i&amp;gt;

Ashenafi Duguma Feyisa

doi:10.11648/j.ijebo.20160404.11

Abstract

Rural households face considerable risks related to farm business such as variability of yield and market conditions. These risks are especially important if they result in income fluctuations. One possible strategy for household is to take up low-risk activities, even if they imply lower returns. This is likely if the households are constrained with risk management instruments. Integrated Seed Sector development Ethiopia program has been intervening to reduce such sub-optimal decision by organizing farmers under Agricultural Cooperatives and establishing market linkage. In this paper, Author examined the role of the intervention on risk-management behavior of farm households (manifested by crop choice) and impact on farm income in case of Southern Ethiopia. The two-step Instrumental Variable estimates confirm positive impact of agricultural cooperatives on crop choice and farm income. In attempt to identify major determinants of participation in the program, the binary probit estimates shed light on factors behind the participation decision and indicates that participation in agricultural cooperatives is strongly linked to access to the program, access to information, having contact with farm extension agents, land size, distance from main road and household size. Majority of non-participants are poor, women, and young headed households. Thus, enhancing participation of the poor, women and young headed households will have favorable impact for increasing resilience of farm households and poverty reduction.

Highlights

Improving the productivity, profitability, and sustainability of smallholder farming is the main pathway out of poverty [1]
Participants have better access to input loan, secured market and price incentive
Majority (90%) of surveyed households are male headed. This was expected because in Ethiopia households are mostly headed by male unless a woman is divorced or widowed

Summary

Introduction

Profitability, and sustainability of smallholder farming is the main pathway out of poverty [1]. Agriculture itself, a key sector operating largely in rural areas, is an intrinsically risky industry [2, 3]. Managing the important risks with which rural communities and individual residents must deal is a continuing task that has not become much easier, in spite of development of better methods and new instruments. Shocks arising from a risky environment such as extreme weather conditions, pests, crop diseases, illnesses, and variable market conditions constrained rural households. Farmers are typically ill-equipped to face such shocks since formal credit and insurance markets are normally missing or incomplete [4, 5].

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