Determinants of Coffee Growers’ Choice of Financing Options: The Case of Dale District, Sidama Zone, Ethiopia

Abstract

The study assessed determinants of coffee farmers’ choices of financial options in Dale district. The study followed multistage simple random sampling method. Data collected from 162 coffee producing households in Dale district were used. Descriptive statistics for summarizing the socioeconomic and demographic characteristics of coffee producing households and multinomial logit model to analyze the determinants of farmers’ financing source choices were used. According to descriptive statistics finding, education level of the household head, total livestock owned by the household, total land holding and land covered by coffee,  average annual coffee supply of household , households past loan experience, membership to SACCOs, holding saving account and local administrative role of the household head shows statistically significant difference among households choice of financing options. The multinomial logit analysis result shows that, compared to financial institution (base category), household‘s livestock holding and households’ proximity to financial institution positively affectsthe use of equity financing, whereas house heads’ sex, holding a saving account, affiliation to local administration and past loan history negatively affects the use of equity financing. While holding a saving account, house head‘s age and affiliation to local administration negatively affects the choices of value chain financing. Households’ total livestock holding found to positively affect choice of value chain financing and other informal sources of finance than financial institutions. Conversely, holding a saving account, total land holding of the household and affiliation to a local administration are found to negatively affect the choice of other informal sources of financing than financial institutions. The study suggests that mounting of financial institutions; overcoming the bureaucracy and transparency problems of government owned financial institutions; provision of financial information and awareness creation for chain actors will improve the farmers’ financial choice decision.

Keywords: Sidama coffee, financing sources choice, value chain financing, MNL, Dale district,