Commercialization through Market Participation: Analysis of Factors Determining Butter Market Participation and Level of Supply, Tigray Region, Ethiopia

Abstract

Market participation is both a cause and a consequence of economic development. Markets offer households the opportunity to specialize according to comparative advantage and thereby enjoy welfare gains from trade. Empirical analysis of the determinants of smallholder market participation has to deal with the econometric hazard of selection bias. The problem arises because households (or individuals) face different types of decisions in relation to market participation, a discrete decision over whether or not to participate in a given market, and a continuous decision as to how much to sell conditional on market participation. following the Heckman two-step approach, the first step is to estimate a Probit model of participation in the relevant market as a function of both those variables that likely also determine butter sales volumes, conditional on market participation, as well as one or more exclusion restriction variables. The study was aimed at identify factors determining butter market participation and supply. Accordingly, the econometric result of market participation decision indicated butter yield, number of extension visit, market information access, family size, distance to nearest market and distance to development center are the significant factors affecting butter market participation. Similarly, quantity produced, distance to nearest market and distance to development center are significant factors affecting level of supply. Based on the study findings, institutional services, butter productivity and spatial setting are main determinants of butter market participation and volume of trade. Therefore, more attention is needed for investments in development of physical infrastructure, communication and road networks. It is also important develop farmers awareness and decision making capacity through training. Institutional arrangements like cooperatives can also be very successful in dealing with both information asymmetries and easily attain competitive edge. In addition, extension agents service should go beyond production technique and therefore should address issues related to marketing, saving and finally commercialization of butter will be achieved.

Keywords: butter supply, market participation, Heckman’s two step model