Crop Mix and Rural Household Response to Shocks in Ethiopia: Household Modelling Approach: Evidence from Ada’a Woreda

Abstract

This study assesses the response of rural households to output and input prices as well as technological changes in mixed crop production in Ethiopia, in the case of Ada'a woreda, by selecting a sample size of 100 households using a non-separable household modeling approach. The Cobb-Douglas function is used for the production and utility functions, and major constraints like land, labor, seed, and fertilizer are considered to find the optimum values that would enable the household to maximize their utility. The 7 most widely produced crops in the village were selected (teff, wheat, chickpea, lentil, bean, barley, and maize). The optimal value exposes that mono-cropping (teff production) is better than multiple cropping to maximize utility. Output price, factor price, and technology stocks were introduced to see how households respond and how and to what extent the production, consumption, and welfare of households are changed. The finding of the study reveals that households tend to leave the agricultural sector if all input prices are increased by 10%, which is the case when households face a minimum welfare level. When output prices increase by the same figure, farmers allocate all of their labor to the agricultural sector. A technological improvement of 20% on teff enables households to fully engage in agricultural activities and secure the highest utility compared to other shocks, while other crops are not responsive to technological change. This implies that stakeholders should focus on improving the method of production of teff in the village. In addition, the government should get involved in such a way that factor prices shouldn't be increased beyond a certain point.