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Staple Crops Prices Versus Smallholders' Constrained www.ijird.com June, 2014 Vol 3 Issue 6 ISSN 2278 – 0211 (Online) Staple Crops Prices versus Smallholders’ Constrained Agricultural Output Maximization: Case of Enderta Woreda, Tigray, Ethiopia Gebremeskel Berhane Tesfay Lecturer, Mekelle University, College of Business and Economics, Ethiopia Tefera Kebede Lecturer, Department of Economics College of Business and Economics, Mekelle University, Ethiopia Abstract: The international and the domestic market in Ethiopia is experiencing an alarming price rise in all agricultural and industrial goods and services. The price rise,at least theoretically, is expected to motivated farmers to produce more agricultural output. Here, our objective is mainly to examine the effect of crop prices on farmers agricultural output maximization. To examine important question, we have collected primary data from 260 respondents from four Tabias of EndertaWoreda selected using systematic random sampling. Supplementary secondary data was collected from Tigray Agricultural Marketing Promotion Agency (TAMPA). We have applied seemingly unrelated regression technique to see the output maximization of wheat, barley and teff in the study area. In a multi-equation regression analysis since the error terms are assumed to correlate, seemingly unrelated regression model is used to address the effect of these error terms correlation on the estimation result. The result of this estimation shows price of wheat, barley and teff have a significant positive effect all at one percent level of significance on wheat output maximization, barley output maximization and teff output maximization respectively. Land size, ownership of oxen, demand for oxen, distance from the next market, amount of money paid to purchase fertilizer, irrigation use have their own contribution on these staple crops output maximization. Providing market price information to farmers, transport services and using resources like land efficiently are some of the policy implication we forwarded. Keywords: Output-maximization, seemingly unrelated regression, Smallholder 1. Introduction The international market is experiencing aspectacularsurge in the price of manyfood commodities since 2005(Janvry and Sadoulet, 2009). An important policy issues are to identify who is being hurt and benefited by such food price rise. Urban and rural non-farm households are most likely to be the main losers from the price change and proportionately more so the poorer since they have higher food budget shares. The conventional expectation which believes that the rise in food price should benefit farm households is the fact that the main activity of these households is agriculture and agricultural business. Despite the conventional expectation, the actual benefits are dependent on different factors like market and institutional setup in the economy. Food markets have been subject to many complications, and Ethiopia have faced very large rise in average food prices over the last few years. This price rise has had large effects on farmers, market participants and consumers. Recently, farm households started to benefit from food prices rise but what matters is that the agricultural produce is not satisfying the prevailing food commodity demand. Moreover, the food price rise is assumed to be the main factor to motivate farmers to produce more through adopting improved agricultural technologies and intensively using their available land and cheap man labor resources. The recent increase in food price can induce the followingimportant sets of questions; Firstly, we can ask whatthe main causes of food price rise are? Second, does the price rise primarily from technological or resource use inefficiency or weather related shocks? Third, does business community speculation lead to increased or decreased food price? Fourth, does food price rise improve welfare of farmers, traders, consumers or vice versa? what are the welfare effects of increased food price for farmers, traders and consumers? The main agenda of this study is not to address all the questions raised above, but to examine the current knowledge on the causes and effects of food price rises, to investigate the extent to which particular current economic factors contribute to price rise or variation, INTERNATIONAL JOURNAL OF INNOVATIVE RESEARCH & DEVELOPMENT Page 326 www.ijird.com June, 2014 Vol 3 Issue 6 and to estimate whether the prevailing food price variation, in the study area, is inducing agricultural production maximization constrained by marketing, input, and weather shocks. 2. Importance of the Study Rural household in the study area is dependent solely on agricultural activity. Household in this area is engaged to produce agricultural produces both for household consumption and market which is for mere subsistence. Given the limited resources of land and capital and the staple crops demand in the market agricultural production needs to be maximized. Examining the household’s agricultural produce maximization given the resources constraints enable to identify the major factors that hinder the maximization problem is imperative both to the household and practitioners. This study is important to the rural household to understand the prevailing market conditions. The result and recommendations of this study can be used by policy makers and practitioners so that rural household farmers can benefit from policy adjustments. 3. Problem Statement of the Study Productivity growth and competitiveness among farmers is instrumental in the development of food items. In practice, when the production of food items has commenced, there is little room for adjustments in production until the next harvest season. Because of the biological production cycle, the short-run response to price signals from the market is likely to be limited. Therefore, one would expect that the supply to be substantially more flexible and therefore more elastic in the long run, as farmers can then adjust to the new economic signals. If production capacity depends critically on some fixed factors, there will be limited opportunities to respond to increasing prices in the short run.As the level of investment is chosen based on the information available before production begins, it may later turn out to be suboptimal compared with the realized yield level and market prices. Furthermore, if capital clearly defines production capacity and it is being fully utilized, there will be limited opportunity to respond to increasing prices in the short run in which capital represents a considerable capacity restriction in staple food production.Despite the efforts done by the government to increase smallholders’ productivity, the food demand gap is filled by importing some food items like wheat. Many studies confirmed that smallholder farmers use resources efficiently and optimize production. The secret behind to produce an optimal level is mainly water use efficiency. Other factors such as efficient use of labor, land, improved agricultural inputs and technologies, and markets are some of the significant factors which have either effect on production maximization. Government is providing inputs such as fertilizer and introduces improved agricultural technologies including the improved seeds usually on credit basis; working on connecting farmers to the market; and introducing new water bank systems for better productivity. Many studies indicate that these government policy interventions result an increased overall agricultural yield outweighing the reservation of farmers to adopt the policy interventions surrounded by capital constraint to refund the loans in bud harvest season. Another production maximization factor, at least theoretically, is the ideawhich believed that producers maximize yield whenever there is high market price of yield. Clearly, there exist a gap between food items demand and supply which is thus far beyond the policy interventions. Here, detail analysis on production maximization in relation to the theory is crucial. As far as the knowledge of the researchers, this dimension of farmers’ production maximization in the study area is not fully addressed; and hence this study is keen to examine whether grains’ price can result(initiate) farmers’ production maximization with the prevailing constraints or not. 4. Objective of the Study The general objective is to examine the relationship between staple food price and smallholders’ constrained production maximization Specifically, the study aims at Estimating the effect of staple food price on staple crops particularly on what, barley, and teff yield maximization. Identifying factors that affects production maximization other than own price of the staple food crops under consideration 5. Methodology of the Study 5.1. Method Of Data Collection This research has collectedprimary information from sample population fromfourKebelles of the Woreda; namely Dergeajen, Chelekot, Debremearnet and Arato with population size of 1127, 766, 1000, and 1597 respectively over which 260sample size are selected using systematic random sampling technique. The number of respondents per Tabiaareproportionally distributed among the four Tabias. We have collected secondary information from the Woreda andTigray Agricultural Marketing Promotion Agency (TAMPA). 5.2. Theoretical Specification of Yield Maximization This paper uses the dual approach to production maximization analysis. The approach involves estimation of a Yield function from cross-sectional data (that show Inter-farm variation in effective prices) (Sadoulet
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