Usufruct Rights in Land in Grain supply Response Analysis: the Case of Ethiopia

Change in the production of a crop at household levels has to date been directly associated with increase in the size of cultivated land. Given that land size can not be augmented by way of land transfer because of the existing land policy. land also given that there is low level of technological application, efforts targeting increase in the production of a crop require land transfer from other crops, making aggregate changes in crop production both at the household and at the national level following incentive changes to be small.A vector auto regression model was fitted, using macro data, to investigate interrelationships between producer prices and size of cultivated land under grains. The findings from the impulse response functions suggested that perturbations in cultivated land do cause chain reactions in producer prices but the reverse was found to be true only for area under cereals. Variance decomposition also attributed higher percentage of variation in areas to come as a result of own innovations. But sizable proportion of variations in producer prices will partly be explained by variations in areas and the remaining higher proportion by their own past. Forecast values were also computed for areas and producer prices. The results showed that both continue to decline in the same direction in the years to come as they have already attained their turning points in the year 1995/96.