Effect Of Non-farm Activities On Agricultural Productivity And Household Income In Ethiopia

In Ethiopia,famine and extreme poverty are a result of demographic pressure,insufficient food relief,poor macroeconomic factors,climate shocks,environmental and natural resources degradation,imperfect agricultural markets and poor infrastructure,undiversified livelihoods based on low productivity in rainfed agriculture,coupled with institutional incapacity.Undertaking non-agrarian income-generating activities to reduce overreliance on agriculture,production failures,and income fluctuations is a household-amenable,self-insurance mechanism,which provides employment opportunities and capital investment.This research examines the determinants of participation in non-farm activities and its effect on agricultural productivity and household income.Descriptive statistics,Heckman's treatment effect model and stochastic frontier analysis(SFA)were applied to analyze a three-wave survey data set captured from 3866 households,carried out by the Central Statistics Agency of Ethiopia in Collaboration with the World Bank.The descriptive statistics results suggest that agriculture accounts for 94.02% of the main occupational activities.About 76% of maleheaded households were involved in rural non-farm activities.The mean age of the households' head who participated in non-agricultural activities was 41 years.The households who are employed in non-farm activities devoted less labor(9.25hr/ha)to farming operations compared to those who rely exclusively on agricultural production(16.5hr/ha)with average farm size of 1.79 ha.The average total livestock owned in tropical livestock unit(TLU)by the participants in non-farm sector earnings was 1.82 contrary to 2.53 for non-participants.Few rural households(42%) had access to business start-ups capital.The Heckman first-stage results of determinants of participation in non-farm activities revealed that low crop production,inefficient annual value of food consumption,were push factors that influenced the households' decision to undertake non-farm activities and these variables were statistically significant at1%.In addition,low level of formal education also found negatively associated with household employment in non-farm sector result in low return non-farm activities.Likewise,the finding from quadratic regression establishes that there is a decline in the likelihood of households headed by aged people,who tend to rely on subsistence farming to engage in alternative non-agrarian activities.The empirical findings from Stochastic Frontier Analysis employed to estimate the effect of nonfarm activities on agricultural productivity revealed that labor was negatively associated with agricultural production,this implies that households' involvement in non-farm activities withdraws labor from agricultural work and this result was statistically significant at 5%.The effect of non-farm activities on farmers' technical efficiency further result in inefficient crop production and this result was also significant at 5%.The results from the second-stage of Heckman model support the non-separability hypothesis of non-farm activities and household income;this implies that engaging in non-agricultural activities has a direct positive effect on household income.The omnipresence of non-agrarian income generating activities in agro-ecoregions requires inclusive rural development policies that focus beyond agriculture based on the recognition of the rural economic heterogeneity.