Analysis of Factors Affecting Persistent and Transient Inefficiency of Ethiopia’s Smallholder Cereal Farming

This essay explains persistent and transient inefficiency effects among smallholder cereal farmers in Ethiopia using household-level panel dataset for 1999–2015. It uses a 4-component stochastic frontier model with determinants of inefficiency and uses a mixed efficiency analysis approach in two steps. First, it estimates persistent and transient inefficiency scores and simultaneously explains their differentials. Second, in a two-stage approach it explains the overall inefficiency effects. Inefficiency effects models reveal that most farmer-specific characteristics, adaptation strategies, agro-ecological and climatic factors influence farming efficiencies with different magnitudes. Transient efficiency is enhanced by gender, household size and number of plots, while it is negatively influenced by age, secondary schooling and temperature variations. Persistent inefficiency is negatively influenced by altitude and ecological factors while overall efficiency is enhanced by farm size, gender, household size and remittances; improved adaptation strategies; and weather and ecological factors. It is negatively influenced by credit use, age, territory, schooling, off/non-farm activities and extreme weather variations. The essay also shows that omission of weather factors from specification affects not only reduce the model’s precision, but also results in biased inefficiency scores and estimates of determinants. These findings are important and can be used to initiate policy options when planning climate change adaptation strategies and agricultural policies. It also discusses policies that advance input supply and sustain improved adaptation strategies and which are suitably designed to suit the needs of farmers and agro-ecological zones’ peculiarities to enhance short-term and long-term productive efficiencies of cereal farming in Ethiopia.