Profit Efficiency Determinants and Implications for Household Food Security Among Smallholder Wheat Farmers in Ada’a District of Central Ethiopia

Abstract

Wheat is a central focus of the Ethiopian government’s policy framework for achieving food self-sufficiency and food security. Improving wheat profitability is therefore essential for sustainable rural livelihoods and food system resilience. While much research has examined technical inefficiency, little is known about profit efficiency and its nexus with food security, particularly in high-potential locations like Ada’a District. Applying a concurrent, embedded mixed-methods design, this critical case study estimates farm-level profit efficiency, identifies its determinants, and examines implications for household food security among 414 smallholder wheat farmers using a translog stochastic frontier profit function, beta regression, and propensity score matching (PSM). The results reveal substantial profit inefficiency (γ = 0.6003), with an average efficiency score of 0.737, ranging from 0.13 to 0.90, implying that farmers could increase profits by 26.32% without additional inputs. Profit efficiency varied widely across households, with 44% operating below the mean and even the most efficient farms falling short of the frontier by 9.58%. Land, fertilizer, and pesticide use significantly enhanced profitability, while labor, farm capital, and seed costs reduced margins, reflecting input misallocation. Interaction effects revealed both complementarities (e.g., fertilizer × land, pesticide × land, seed × capital) and inefficiencies (e.g., labor × land, seed × land, fertilizer × capital), accounting for 18–22% of variation in profit efficiency. Beta regression identified improved seeds, irrigation, frequent extension contacts, and farming experience as efficiency enhancers, whereas pest incidence and land fragmentation increased inefficiency. PSM analysis showed that profit efficiency had a positive and statistically significant relationship with food security. Households in the lowest efficiency quartile experienced 7.23–8.47-point reductions in food consumption scores, while those in the highest quartile gained 6.88–8.91 points, highlighting efficiency’s role as a channel for transmitting welfare gains. Policies should promote equitable irrigation access, improved seed adoption, timely pest management, responsive extension services, cooperative approaches to land fragmentation, and rural infrastructure development. Targeted support for low-efficiency households, promotion of input complementarities, and improved access to labor-saving technologies and farm capital are critical strategies to enhance wheat profit efficiency as well as the food security of households in Ada’a District. These strategies can enhance profitability, food security, and resilience to climatic and market shocks.