Factors Affecting Gross Margin from Potato Farmers

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Published on International Journal of Agriculture & Agribusiness
Publication Date: March 18, 2019

Mesfin Abebe Mersha, Leykun Birhanu Demeke & Asahel Birhanu
Department of Marketing Management, St. Marry University Addis Ababa, Ethiopia
Ethiopian Sugar Corporation, Addis Ababa, Ethiopia
Arsi University, Assela, Ethiopia

Journal Full Text PDF: Factors Affecting Gross Margin from Potato Farmers (Study in the Holeta District, Ethiopia).

In the absence of well-functioning markets, agricultural production can experience several drawbacks. Markets are important on the economic growth and sustainable development of given country, emphases in development policies in agrarian countries have usually been placed on the increasing agricultural production to serve as a base for rural development society. The general objective of the study was to examine factors affecting Holeta District potato farmers’ gross margin and specifically to examine the effects of farmers’ demographic characteristics, factors of production, production cost, institutional factors and, livestock ownership on the potato producing farmers’ gross margin. The study in Holeta District Kebeles of Welmera, Goro and Arebot. Descriptive result showed that age, land size (contracted and owned), potato farm land size, livestock ownership and input costs, access to irrigation, credit, potato output, extension services and sales revenue had significant outcome on farmers’ gross margin. Ordinary Least square regression result showed that education level of household head, household size, potato cultivated land size, quantity of potato produced, input cost, livestock ownership and access to market information had expected sign and significantly affect sampled potato farm household gross margin. Thus, introduction of modern technologies for irrigation, controlling disease and pest should be encouraged to increase production; intensification of efficient extension systems by giving continuous competence trainings and extrication extension work enhance potato farmers’ gross margin.

Keywords: Potato Marketing, Gross Margin & Holeta District.

1.1. Background of the Study
Production of potatoes in Ethiopia is basically for subsistence use (mainly household consumption) withlimited surplus for sale in order to earn income despite enormous opportunities for national, regional and global trade. There is no cross-border trade with Ethiopia, but this only occurs to meet the very short term potato supply shortages (Okoboi, 2001; Ferris et al., 2002). The potato value chain is not well organized or integrated because producers, transporters, marketers, wholesalers and retailers are fragmented. This lack of organization is one factor that isolates the potato sub-sector from regional and global markets. There are few initiatives for collective action in potato production and marketing and those existing are in their infancy and widely scattered (Ferris et al., 2002) leading to limited or no integration of stakeholders along the potato value chain.
With increasing population and urbanization and thus growing demand coupled with the increase in fast food restaurants and supermarkets, the potato sub-sector in Ethiopia is bound to expand. This was noted by Ferris et al. (2002) who estimated the demand for potatoes to be approximately 850,000 to 1,200,000MT per year by 2015.Production volumes increased from 478,000MT in 2000 to 695,000MT in 2010 (FAO, 2012). This is an opportunity for potato farmers to increase farmers’ gross margin and productivity of improved and suitable potato varieties, which will in turn increase their income and improve food security and livelihood.Given the challenges and opportunities that smallholder farmers face in Ethiopia, it is important to identify factors affecting farmers’ gross margin in the area of Holeta, Western Shoa.
Horticultural crops play a significant role in developing country like Ethiopia, both in income and social spheres for improving income and nutrition status. In addition, it helps in maintaining ecological balance since horticultural crops species are so diverse. Further, it provides employment opportunities as their management being labor intensive, production of these commodities should be encouraged in labor abundant and capital scarce countries like Ethiopia (Goletti, 2000).For most Ethiopian smallholders, fruit and vegetable cultivation is not the main activity rather it is considered supplementary to the production of main crops and the cultivation is on a very small plot of land and is managed by a household. This low priority for horticultural crops cultivation was mainly due to the traditional food consumption habits that favor grain crops and livestock products in most parts of the country resulting in weak domestic market demand for horticultural products. Horticulture production is an important source of income for smallholder farmers’ and demand for the products is raising in both domestic and international markets thus increase smallholder Farmers’ participation in the market (Yilma, 2009).
Horticulture production gives an opportunity for intensive production and increases smallholder farmers’ participation in the market (Emana and Gebremedhin, 2007).Vegetables produced in the eastern part of Ethiopia are supplied to the local markets and to the neighboring countries. Potato and onion/shallot are the most commonly marketed vegetables accounting for about 60% and 20% of the marketed products respectively. The other products such as cabbage, beetroot, carrot, garlic, green pepper and tomato are marketed at relatively smaller quantities by few farmers (Bezabih and Hadera 2007).
Ethiopia has good potential in horticultural crops production for which smallholder farming have diversified from staple food subsistence production into more market oriented and higher value commodities. Despite this production potentials and importance of horticultural crops for the country as well as the study area, there has been limited study with regard to the performance of vegetables market and challenges of the market. Therefore, the purpose of this study is to determine Factors Affecting Holeta District Potato Farmers’ Gross Margin in Oromia Regional State of Ethiopia.

1.2. Statement of the Problem
Consumers need standardized products, yet these farmers have little knowledge of consumers demand and hence cannot produce what the market needs. Even if they produce what the market needs, they may have little information of reliable and profitable markets. In such circumstances, there is potential exploitation of farmers by the middlemen and wholesalers in the chain because the market value of the potatoes is subject to very limited negotiation, given that almost all farmers sell to middlemen at the farm gate. The exploitation is further exacerbated by absence of standardized packing and weighing scales (Hoffler and Maingi, 2005). The growing demand for potatoes in urban areas could therefore contribute positively to the development of the rural areas and the overall economy of Ethiopia if there is 2 way efficient flow of market information.
High marketing margins exist either because of monopolistic elements in the marketing chain or becausethe real costs of marketing are high. High marketing costs may be due to poor marketing services and infrastructure.Thus, improving the marketing services such as storage, transportation, and processing can lead to improvement of rural income by reducing marketing costs (Fuglie, 1993). Farmer collective action has also been proposed as a way of improving the welfare of smallholder farmers in the emerging high-valueagricultural markets (Horton, 2008) as it can improve the bargaining power.
It is common to see imperfect markets in countries mainly depending on the primary agricultural commodities. The problem is severe for countries like Ethiopia that obtain a big share of their gross domestic product, employment opportunity from a single industry. Diversifying the agricultural products and its market base towards non-traditional high-value horticultural crops could increase the earnings and reduce fluctuations (Haji, 2008).Despite this potential, the farmers’ in the area rarely utilize the opportunity to improve their livelihoods. The smallholder producers are price takers since they have little participation in the value chain and imperfection of the marketing system. As a result, smallholder farmers’ have repeatedly faced risk of unexpected fall in horticultural product prices (Goletti, 2000).
It is well known that different household attributes put households under different production and marketing potentials. The market challenges of that the households face might influence the households/ farmers’ participation decision and the extent of participation, the type of vegetable crops they would like to grow and the size of farmland they would like to allocate to a specific crop. This could be due to the fact that production and marketing decisions of households are two sides of a coin. The two decisions go hand in hand as farmers’ produce what they could sell at an available market. Knowing the interaction patterns between the two decisions helps to understand what crop is sold at which market and whether the intention of selling at a particular outlet increases or decreases the size of farmland allocated to the specific crop (Lumpkin et al., 2005).The supply from other parts of the country is seasonal; often needed to bridge the gap between demand and supply. The potatoes supplied from the eastern part of the country are considered inferior in terms of quality and sold relatively cheaper (Haji, 2008).This study has the purpose of investigating the vegetable specifically factors affecting potatofarmers’ gross margin in Holeta district.
Imperfections in markets and asymmetric market price information hinder the potential gain that could have been attained under the existence of markets with complete information. In this regard, marketing vegetable crops at farm-gate is an interesting process that has not been investigated much. Both buyers and sellers usually do not have equal market information on the vegetable prices at the central market. Under such circumstances, farm households selling vegetable crops at farm-gate deal with the trade-off between selling their crop harvests at higher possible prices and avoiding the risk of losing product quality if the transaction fails by holding on to higher prices. An interesting issue in this regard is what factors determine the farmers’ to get gross margin in the vegetables market (Mari, 2009).
As efficient, integrated, and responsive market mechanism is of critical importance for optimal area of resources in agriculture and in stimulating farmers’ to increase their output (Andargachew, 1990). A good marketing system is not limited to stimulation of consumption, but it also increases production by seeking additional output. However, there is a critical problem that stands in the course of formulating appropriate policies and procedures for the purpose of increasing marketing efficiency. This has to do with lack of pertinent marketing information and other marketing facilities, like storage and transportation(Andargachew, 1990).Thus, reducing the information gap on the subject by contributing to better understanding of improved strategies for reorienting marketing system for the benefit of small farmer development is found to be vital. Therefore, this study aims to determine Factors Affecting Holeta District Potato Farmers’ Gross Margin in Oromia Regional State of Ethiopia.