Smallholder farmers' crop production and input risk analysis in rural Ethiopia

Different types of risks are inherent in agricultural production. This study examines agricultural input risks faced by smallholder farmers in rural Ethiopia. It uses data from farm household surveys covering the period 1995-2015. The study uses a stochastic production function approach for estimating the mean production and risks of agricultural inputs. The mean production estimation results are consistent with the economic theory of conventional inputs. Land and labour have higher elasticities than the other inputs. The variance or risk estimation results show that fertilizers and labour are risk-decreasing inputs, while land is a risk-increasing input. Crop diversification has a risk-decreasing impact. The more farmers diversify their crops, the less is the yield variability. However, the risk variation effects of farm inputs vary across regions in the country. For example, risk-decreasing effects of fertilizers are high in the Oromia region, moderate in the Southern Nations and Nationalities and low in the Amhara regional state. Variations in regional input risks need to be considered in national agriculture risk management and food security efforts. The risk variation effects of these inputs decreased over time.