Production Efficiency and Market Performance of Smallholder Vegetable Producers in Lake Tana Basin, Ethiopia

Ethiopia is at low level of production and consumption of vegetables although the country has favorable climate condition for the production of vegetable crops. Lake Tana basin is one of the most potential vegetable production areas in the country. However, vegetable production in this area is carried out at smallholder level whose production practices are subsistence with low production and marketing infrastructure. This study aimed to examine the production efficiency, market performance and marketing outlet choice decision behavior of smallholder vegetable producers in the Lake Tana basin of Ethiopia. Data were collected from 385 vegetable producing households and 107 vegetable traders selected through multistage random sampling mixed with non-probability sampling techniques from three districts. Both descriptive statistics and econometric methods were used to analyze the data. Structure-conduct-performance (SCP) analysis was made to assess the structure and performance of vegetable marketing. Stochastic frontier Cobb-Douglas production function was used to estimate technical, allocative and economic efficiencies of vegetable producer households. Sources of inefficiencies were identified using tobit model. Multivariate probit model was also employed to identify factors affecting vegetable producers’ market outlet choice decision behavior. The result of the SCP analysis showed that market structure in the study area could be characterized by weak oligopoly market. The result also showed market channels linking farmers and urban wholesalers with few intermediaries had higher producers’ price and net margin. The SCP analysis showed that storage loss and transport cost were the two largest cost components of vegetable marketing. The result of the stochastic frontier model showed that land and seed are the most limiting factors for the production of vegetables in the study area. The mean technical, allocative and economic efficiency scores were found to be 67, 58 and 39 percent, respectively, indicating the existence of substantial inefficiencies in vegetable production. Technical, allocative and economic inefficiencies are significantly affected by sex, marital status, and livestock holding. The result of multivariate probit model showed that there is negative and significant correlation between spot market with farm gate and roadside outlets indicating that farmers selling to roadside and farm gate are less likely to sell to market place. Buyers visit and age of household head jointly influenced farmers’ choice of market outlets. The study suggests that the government and concerned bodies should focus on linking farmers with urban wholesalers and accessing various market outlets through establishing farmers’ group marketing with least cost storage and transport technologies. In addition, efforts should be made to establish improved seed producer farmers’ group and/or strengthen the existing farmers’ cooperatives to increase the availability and timely delivery of improved seed of different crop varieties. In addition, agricultural offices should try to bring experienced and younger farmers together under experience sharing forums, farm visits, short and long-term training to share farm practice knowledge and market information sources among themselves.