Analysis of Risk and Supply Response of Agriculture: Empirical Investigations from the Ethiopian Coffee Growing Zones

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Addis Ababa University


A study was conducted to examine the major shocks and their impact on coffee production and the livelihood of smallholder coffee farmers in five major coffee growing zones of Ethiopia, namely, Sidamo, Jimma, Illubabor, Wolayta and West Hararghe. After pooling the available data set using the error component model, the pooled OLS and fixed effects regression methods were used to analyze the effects of shocks on coffee production and supply response variation across the study areas. It was found that a combination of shocks including drought, pests and coffee diseases, drastic fall in world coffee price and health problems have serious effects on coffee yield and household income. Households living in different zones of the country have different supply responses because of the socio-economic and agroecological differences. In the face of the severe effects of shocks, farmers have adopted a range of risk management strategies such as intercropping, depleting assets, borrowing, membership to a social support system and production/marketing unions. However, under the prevailing production technology and farming systems, the strategies employed by farmers are not adequate enough to cope with the effects of the recurring shocks. Policy implication of the study is that one-size-fits-all policy packages and blanket recommendations cannot solve the problems of coffee farmers. Therefore, under the current dynamic market scenario, the success of the Ethiopian coffee sub-sector highly depends on targeted support to reduce the impacts of shocks and to build the capacity of indigenous institutions. Interventions need to be disaggregated by agro-ecological zones and socio-economic settings.



Economic Policy Analysis, Economic Policy