The Determinants of Profit Efficiency of Coffee Producing and Marketing Cooperatives (The case study of Sidama Coffee farmers’ Union)

Abstract

Ethiopia is implementing the plan for modernizing agriculture and eradicating poverty through cooperatives as one of ways to tackle poverty in both rural and urban areas. Consequently, it necessitates to access technical information on strategic cash crops such as coffee, which is the major cash earner for the farmers and the nation at large. The main objective of this study was to explore the major determinants of profit efficiency of coffee producing and marketing cooperatives. Along with plastering objectives of measuring profit efficiency and estimating profit frontier. The research used cross sectional data collected from three districts namely Abela, Howolso and Taramessa in south region Ethiopia. The data used both quantitative and qualitative paradigms .Apart from this, the thesis employee two econometric models of Stochastic Profit frontier Model and Firm specific inefficiency models. The parameters were estimated simultaneously using FROTIER4.1 and STATA 9 softwares.  In the research both primary and secondary data were used and more of primary data have been given priority as the model requires primary data. The result showed area/land under coffee and cost of hired labor had positive impact on profit levels while cost of family labor and capital were found to have negative influence on profitability. The analysis reveals that firms were not operating at profit frontier and scored a mean profit efficiency of 57 and it implies there a 43%profit loss due to firm specific and institutional variables. Further analysis showed coffee farmers are losing income due to allocative and technical inefficiency. The established source of inefficiency variables were found limited access to credit extension worker lack of storage after harvest, education level of the farmers and the major determinants were access to extension service, lack of formal education and storage facilities. The research has come up with recommendation That government need to train farmers about basic skills of farming and technology diffusion, establishing and strengthening existing cooperative banks to enable farmers to have access to credit facilities so as to uplift and scale up the lively hood of farmers.