The Role of Agricultural Cooperatives in Risk Management and Impact on Farm Income: Evidence from Southern Ethiopia

Abstract

Rural households face considerable risks related to farm business such as variability of yield and market conditions. These risks are especially important if they result in income fluctuations.  One possible strategy for household is to take up low-risk activities, even if they imply lower returns. This is likely if the households are constrained with risk management instruments. Integrated Seed Sector development (ISSD) Ethiopia programme has been intervening to reduce such sub-optimal decision by organizing farmers under Agricultural Cooperatives (AC) and establishing market linkage. In this paper, the role of the intervention on risk-management behavior of farm households (manifested by crop choice) and impact on farm income examined taking case of Southern Ethiopia. The two-step Instrumental Variable estimates confirm positive impact of agricultural cooperatives on crop choice and farm income. In attempt to identify major determinants of participation in the programme, the binary probit estimates shed light on factors behind the participation decision and indicates that participation in agricultural cooperatives is strongly linked to access to the programme, access to information, having contact with farm extension agents, land size, distance from main road and household size. Majority of non-participants are poor, women, and young headed households. Thus, enhancing participation of the poor, women and young headed households will have favorable impact for increasing resilience of farm households and poverty reduction.

Keywords: Cooperative, Risk-management, Impact