Marketing efficiency of agricultural cash crops and rural household welfare in South Gondar, Ethiopia

Abstract

Continually low price-to-cost ratios in rural households’ livelihoods perpetuate chronic food insecurity and further weaken their economic resilience. Thus, our rigorous aims are: (i) to compute efficiency scores and evaluate the efficient market channel, and (ii) to examine the determinants of market efficiency scores and empirically test the effects of market efficiency scores on the well-being of rural households. We employed the Tobit model to analyze data collected from 400 farming households. Efficiency scores estimated using the Shepherd, Calkins, and Acharya indices indicate generally low market efficiency for cash crops, with direct marketing channels performing relatively better than indirect channel. The study identified the key contributors to post-harvest losses, which included limited transportation access (32.5%), adverse weather conditions (31.75%), price reductions (13.75%), and socioeconomic constraints (2%). Empirical results show that market efficiency scores were negatively associated with input costs, market distance, and post-harvest losses, but positively associated with household consumption, cash crop production, and market experience. However, market efficiency had no significant direct effect on household welfare, which was instead influenced by post-harvest losses, product diversification, and family size. These findings underscore the importance of market experience, integration, consumption, and post-harvest losses for both market efficiency and household welfare. Thus, expanding cost-effective market infrastructure, improving market integration, and promoting direct marketing channels can help mitigate inefficiencies and reduce exploitation by intermediaries.