Feasibility of On-Farm Commercial Grain Storage in the Smallholder Agriculture of Ethiopia

Abstract

This study investigates the feasibility of on-farm temporal arbitrage for two major food crops in Ethiopia as a strategy to raise and stabilize the income of smallholder farmers under competitive liberalized agricultural market conditions. Descriptive techniques are used to identify the temporal behaviour of producer prices, with the objective of detecting any identifiable and regular seasonal patterns that could be used as a basis to plan on-farm temporal arbitrage. Next, the identified temporal behaviours are tested for stability. Once stable temporal price behaviours are confirmed, the feasibility of on-farm temporal arbitrage is investigated by comparing values of the monthly ‘gross real return to storage’ with threshold and tripled storage-cost scenarios at farm level. The results reveal that on-farm temporal arbitrage is economically feasible for the majority of months in a year in the case of the threshold cost scenario and for about six months in the case of the most pessimistic cost scenario. Based on this empirical evidence, on-farm temporal arbitrage should be promoted as a policy strategy to raise and stabilize the income of smallholder farmers. By doing so, the incentives of smallholder farmers could be improved to increase food-crop productivity and, eventually, their food-security status.

Keywords

smallholder farmers grain storage farm income food production Ethiopia

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