Factors influencing the coffee market supply among smallholder producers in Southwestern Ethiopia

Abstract

Analyzing the factors influencing the coffee market supply is crucial for identifying the key areas of policy intervention. This study investigates the factors affecting coffee market supply among smallholder coffee growers in Southwestern Ethiopia, focusing on the Ilu Abba Bora and Jimma zones. Qualitative and quantitative data were collected from 383 randomly selected smallholder farmers using a structured and semi-structured questionnaire complemented by primary and secondary data, respectively. The data analysis employed a descriptive and a 2SLS econometric model used because of the endogeneity problem. For this model, appropriate instrumental variables (IVs) were selected to address potential endogeneity. In this case, the education level of the household head and extension contact was chosen as the instrument. The R² indicated that the explanatory variables explained 90% of the variation in the coffee market supply, suggesting a strong model fit. The 2SLS results showed that coffee supply was positively and significantly influenced by the quantity of coffee produced (1% level), landholding size (5%), livestock holdings (5%), and non-farm income (5%). This indicates that households with higher production, larger land and livestock assets, and additional income sources are more capable of supplying greater quantities of coffee to the market, highlighting the importance of both farm and off-farm resources in determining market participation. Conversely, household size has a significant negative effect on coffee market supply. Overall, the findings indicate that socioeconomic and demographic factors jointly shape the coffee market supply in Southwestern Ethiopia. Therefore, policymakers should work closely with smallholder coffee producers to address market-related constraints and enhance the coffee supply performance.