1 O '7 .35- PRODUCTIVITY ANALYSIS OF PRIVATE AND SOCIALIZED AGRICULTURE IN ETHIOPIA by Mesfin Mirotchie Dissertation submitted to the Faculty of the Virginia Polytechnic Institute and State University in partial fuliillment of the requirements for the degree of l Doctor of Philosophy in Agricultural Economics APPROVED: /,4 ‘~ r Ä .:,;,,1 A. , 4, Daniel B ayl r, -Chair Brady J l'-f, Co-Chair äkd jGeorgeW. Norton To w- . Johnson „ 1- F · ~ Barbara . C William A. Leuschner February 1989 Blacksburg, Virginia PRODUCTIVITY ANALYSIS OF PRIVATE AND SOCIALIZED AGRICULTURE IN ETHIOPIA by Mesfm Mirotchie 1. Dar1iel B. Taylor, Co-Chair lr Brady J. Deaton, Co-Chair Agricultural Economics (ABSTRACT) cooperative and The system of cereal grain production ir1 Ethiopia has been stratified into private, gradually replaced by the state farms since the 1975 land reform. The private farms are being budgetary assistance cooperative fanns while the state farms are receiving increased technical and are consistent with the by the Ethiopian government. lt is, however, not clear if these policies evaluated technical characteristics of these three modes of production. This study, therefore, scale parameters for technical efliciency, irnpacts of known and latent input factors, and retums to each farm type. barley, com, sorghum, Sample data were collected from Ethiopia on five eereal crops, namely, farm implements, tejf and wheat and several input factors, including labor, land, oxen, traditional and rainfall over tractors, machinery services, modern yield·increasing inputs, livestock, education model was applied with j 77 awrajas for the 1980-1986 production period. A covariance regression Cobb-Douglas and translog these data to determine an appropriate functional form between the analysis on the basis of production functions/The Translog functional form was selected for the statistical tests. appear to have a potential Results of the analysis suggest that the producer cooperatives collectively with respect to an to generate increased gross income per hectare at a declining rate cost of production equiproportionate increase in all inputs, except land, upon an increasing average a close to fixed per unit of cereal output. The private and state farms appear to be operating with proportions type of production technology with a constant average cost of production per unit of cereal output per hectare. Moreover, the range of substitutability between input factors tends towards a complementary relationship as the institutional transfomrations and management techniques of the cereal producing farms shift from the traditional to a more advanced and centrally managed state mode of production. is Partial income elasticity pararneters suggest that (a) the private sector’s gross income per hectare level of most responsive to traditional hand tools, fertilizer, labor, human capital at primary education, and rain in August and September; (b) the cooperative sector’s gross income per hectare hectare is most responsive to the use of tractors and September rain; whereas (c) gross income per of the state farms is most responsive to the use of traditional labor, machinery services and rain in June and August. Thus, Ethiopia’s agricultural income production per hectare is likely to be revitalized by: (a) qualitative changes in the traditional inputs, water management, and introduction increased of modem technical inputs such as fertilizer and farmer education in the private sector; (b) modem traditional labor employment, improved management of water, machinery and yield-increasing inputs on the state farms; and (c) a better usage of tractors and collaborative input achieve factors, improved water management, and a substantial increase in capital investment to full farms. It employment of the seemingly redundant labor and oxen input factors on the cooperative cereal output per seems unlikely that the producer cooperatives will achieve the goal of maximum hectare with the most prevalent composition of the redundant traditional input factors which production contribute insignificantly at the margin without a major change in the current techniques and structural policies of the sector. Acknowledgements I have received helpful advice and criticism from Brady Deaton, Dan Taylor, George Norton, Tom Johnson, Barbara Craig, and Bill Leuschner, members of my Dissertation Committee. Each one brought unique expertise and cornrnitment to this eifort that was indispensable to the completion of this study. I am particularly indebted to Dan Taylor and Brady Deaton who have been my co-advisors. This dissertation includes numerous modiiications made as a result of their, especially Dan’s, suggestions on reading the original drafts. v Acknowledgements Acknowlcdgcments vi Acknowledgements vii Table of Contents List of Illustrations ......................................................1--ggiii List of Tables ...........................................................xiv 1 CHAPTER ONE: INTRODUCTION ......................................... 1 1.0 Introduction ........................................................ 4 1.1. Focus of the Study .................................................. 7 1.2. Objectives of the Study ............................................... 7 1.3. Production Relationships to be Examined .................................. 8 1.4. Justilication ........................................................ 13 1.5. Summary of Procedures .............................................. 14 1.6. Contributions of the Study ............................................ 15 1.7. General Organization of the Study ...................................... ....... 16 CHAPTER TWO : ECONOMIC SETTING OF ETHIOPIAN AGRICULTURE 16 11.0. Introduction ..................................................... 17 11.1 The Role of Agriculture In Economic Growth ............................. 22 11.2. Economic Geography of Ethiopian Agriculture ............................ 22 11.2.1. Physiographic Characteristics of Ethiopia .............................. 25 11.2.2. Economic Elements of Agricultural Practices ........................... Table er Contentsviii 34 11.2.3. Traditional Land Management Practices .............................. 35 11.2.4. Resource Extraction, Scarcity and Migration ........................... 43 11.2.5. Recurrent Record of Drought and Famine ............................. 47 11.3. Agriculture and Land Tenure Before 1975 ................................ 48 11.3.1. Kinship Tenure System .......................................... 50 11.3.2. Village Tenure System ........................................... 51 11.3.3. Private Tenure System ........................................... 52 11.3.4. Church Tenure System ........................................... 53 11.3.5. Government Tenure system ....................................... 54 11.3.6. Strategies for Agricultural Development in Pre·1974 Ethiopia ............... 56 11.3.6.1. Cornrnercial Farms Strategy .................................... 59 11.3.6.2. Package Projects Strategy ...................................... 62 11.4. Agriculture and Land Tenure in Post·l974 Ethiopia ......................... 64 11.4.1. Rural Institution Development ..................................... 65 11.4.1.1. Farmer Associations .......................................... 69 11.4.1.2. Service Cooperatives .......................................... 70 11.4.1.3. Producer Cooperatives ........................................ 71 11.4.1.4. State Farms ................................................ 73 11.4.2. A Cursory Assessment of Post·l974 Agricultural Development .............. 74 11.4.2.1. Farm Input Allocation ........................................ 84 11.4.2.2. Income Production .......................................... 92 11.4.2.3. Income Distribution, Taxes and Prices ............................ 101 11.5. Summary ....................................................... 103 CHAPTER THREE : ANALYTICAL METHOD .............................. 103 111.0. Introduction .................................................... 104 111.1. Variance Components Estimation Method .............................. 109 111.2. Production Functions ............................................. 111 111.2.1. Cobb·Douglas Production Function ............................... Table of Contentsix 111.2.1.1. Functional Form .......................................... 111 111.2.1.2. Technical Efliciency, Average and Marginal Productivities ............. 112 113 111.2.1.3. Marginal Rate of Substitution ................................. 111.2.1.4. Elasticities ............................................... 113 115 111.2.2. Transccndental Logaxithmic production Function ...................... 115 111.2.2.1. Functional Form .......................................... 117 111.2.2.2. Technical Eiliciency, Average and Marginal Productivities ............. 119 · 111.2.2.3. Marginal Rate of Substitution ................................. 119 111.2.2.4. Elasticitics ............................................... 122 111.2.2.5. Limitations in Empirical Application .....................E....... 125 111.3. Functional Form Selection Criterion .................................. 131 111.4. A Procedure for Hypothesis Testing ................................... 131 111.5 Summary ...................................................... V ..........‘ 133 CHAPTER FOUR : REGIONS, VARIABLES AND SOURCES OF DATA 133 1V.0. Introduction .................................................... 133 1V.1. Characteristics