Determinants of Market Participation and Financial Profitability of Smallholder Dairy Farming: The Case of Bako Tibe, West Showa, Ethiopia

Abstract

Ethiopiaʼs economy primarily depends on agriculture. The sector is dominantly run by smallholder farmers and contributes to about 50% of GDP and provides employment for about 83% of the total population. Dairy farming agriculture is considered important for stimulating growth, economic development, food security and poverty reduction. As a remedy, this study was initiated with the objectives of determining factors affecting dairy market participation and financial profitability of dairy farmers in Bako Tibe. Data came from the survey of dairy producing households and from secondary sources such as District Agricultural Office, Bako Agricultural and Mechanization Research Centres and the like. Maximum likelihood estimation procedure such as logit model was employed in identifying factors affecting decision to sell dairy products, tobit model was used in investigating factors affecting decision on volume of dairy sales. Total revenue less total variable costs and OLS were used in examining financial profitability of the dairy farmers. Results show that farm householdʼs market participation decision is affected by household demographic and socio-economic characteristics and transaction costs represented by distance to market and urban centers. Volume sale of dairy is affected by intellectual capital, transaction cost represented by distance to district capital and markets. Financial profitability is affected by distance from market, extension visit, education level of the household head, number of milking cows owned and family size. The results suggest that production and marketable surplus should be improved through introduction of improved technologies and adequate marketing infrastructure like roads and transport facilities should be established between rural and urban areas in the district to support enhanced market participation. With the aim of reducing transactions cost adequate marketing link should be established between the rural producer and urban consumer through institutional arrangements such as dairy cooperatives. Relaxing the criteria required in obtaining bank and micro credit and forming a well functioning urban and rural financial system would enable resource poor farm households to participate in dairy market and improve its supply of dairy products to the urban consumers.