Working Paper 253 - Climate Change Challenges, Smallholder Commercialization and Progress out Poverty in Ethiopia

In Ethiopia, smallholder farmers’ commercialization and integration into the market has been one of the policy directions to ensure households’ progress out of poverty and maintain the sustainable development trajectory. A lot of progress has been made in this endeavor over the past couple of decades. However, market participation and degrees of commercialization still remained unsolved puzzle. This paper investigates smallholders’ market participation, degree of commercialization and the linkage to poverty reduction using a survey of 453 HH in central part of Ethiopia. Household Commercialization Index (HCI) approach was used to measure degree of commercialization, while a double hurdle regression model was employed to identify the key determinants for market participation and degree of commercialization. Then the relationship between commercialization and poverty was examined by using logistic regression. The result indicates that significant proportion of HHs was out of a product market and the degree of commercialization still remains very low. While poverty has opposite relationship to market participation, it was found to be better influenced by other factors than degree of commercialization.