2. Discussion
In this chapter, key concept used in the review has been defined. The chapter also presents reviews literature on the determinants of smallholder market participation decision and outlet choice in Ethiopia.
2.1. Definition and Basic Concepts
Smallholder farmers: Smallholder farmers are defined as the basis of land and livestock holdings, cultivate less than two hectares of land and own only few herds of livestock.
Market: a point or a place within which price-making force operates and exchanges of title tend to be accompanied by the actual movement of the goods and services being transacted.
Market participation: Market participation entails farmers being able to buy inputs in the input market or being able to sell their output in the output market. It also defined as any market related activity which promotes the sale of produce.
Market outlets: are the buyers through which the farmers sell their farm product.
2.2. Importance of Smallholder Farmers’ Market Participation
Market participation by farmer plays a crucial role for deriving benefit such as income and rural employment in the farming. The rural employment derives from market participation includes sorting, grading, transportation among other activities. Market participation has motivated the farmers to move from subsistence farming to commercial farming. Commercial farming increases farms’ output, hence enabling the farmer to earn more income. Noted that farmers’ market participation is very vital for sustaining economic growth, food security and poverty alleviation. Most farmers who participated in the market tend to be food secure because the income they derives from the sale of their output has enabled them to purchase the staple food.
Economic liberalization has given opportunities for smallholder farmers to diversify their products and take their surplus to nearby markets. Removing trade barriers and discouraging local monopoly has helped smallholder farmers to choose their markets for both inputs and harvested products. In summary, marketing plays a crucial role in meeting the overall goal of food security, poverty alleviation and sustainable agriculture, by integrating subsistence farmers into the inputs and outputs market of agricultural products.
2.3. Determinants of Smallholder Farmers Market Participation Decision
Market participation is determined by external and internal factors. The internal factors are barriers which relate to the failure by farmers to meet market expectations due to lack of physical asset, financial assets and human assets. Factors like smallholder resource endowments including land and other natural capital, labor, physical capital, human capital and so on are household specific and considered to be internal determinants. The external ones are factors beyond the smallholders control like technological change and development of new infrastructure.
Smallholder farmers also frequently lack commercial information, physical infrastructure is poor causing high transaction costs, and remoteness increases costs and reduces competition. The determinants of smallholder farmers’ market participation decision include; demographic and socio-economic factors, institutional factors, market factors, technological factors, transaction cost and risk.
2.3.1. Demographic and Socio-economic Factors
Demographic and Socio-economic factors are factors that influence the social and economic wellbeing of an individual turn to determine small holder market participation. Demographic and social-economic factors are includes: age, gender, education, experience, household size, land size, livestock ownership and off-farm income. Conducted study on determinants of kocho and bulla market participation decision and intensity of participation at farm level using Hackman selection model (two-step) in Doyogena district, southern Ethiopia. The result revealed that, age of the household head, number of livestock owned and area under Enset cultivation were positively where family size was negatively affect kocho and bulla market participation.
NuriLefebo Conducted a study on determinants of market participation among kocho producers in Hadiya Zone. They adopted Heckman selection model to indicate determinants of farmers’ participation decision and extent of participation in kocho market. They found age of the household head, sex of the household head, livestock ownership, off-farm income and labor as statistically significant factors affecting kocho farmers’ market participation decision. Investigated study on determinants of smallholder market participation among banana growers in bench Maji Zone, Southwest Ethiopia. They used the Heckman selection model (two-step) to identify the factors affecting market participation decision of households. Their result revealed that age, household size, fruit income, land holding, livestock (TLU) were significantly affect smallholder market participation among banana growers.
2.3.2. Institutional Factors
Institutional factors are factors that govern production and transaction activities of farmers and turns to influence market participation. Institutional factors are includes credit access, infrastructure, member ship in the group and extension service has an influence on market participation. Amount of credit taken increases the probability of household’s market participation. This might be due to higher amount of credit eases liquidity constraints of households that contributes to market orientation.
In addition, it means higher capital to invest in livestock, in higher yielding crops, in seasonal inputs that boost yields, in purchase of fertilizer and improved seeds and invest in improved technologies. Membership to the group has both positive and negative impact on market participants. It positively impacts on market participation because it increases households’ access to information vital to production and marketing decisions. On the other hand, it can negatively impact market participation in case disagreement emerges among group members, distorting marketing decision. Extension service has impact positively on market participation because it is through extension services that farmers are able to acquire better skill and knowledge on marketing As a result, institutional factors like infrastructure and access to extension service should be given attention due to their role in market participation.
2.3.3. Market Factors
Market factors are any external factors that affect the demand for good or the price of a good. According to Supply-side and demand-side constraints are limit market participation by smallholder farmers. supply-side constraints includes physical constraints such as poor roads and infrastructure, lack of storage facilities, poor communication that adversely affect their market participation and capacity constraints such as lack of credit and financial services that inhibit them from improving their productivity, lack of access to inputs and other agricultural technologies, lack of organizational support, lack of skills and knowledge on new technology that would increase their production, poor knowledge of market. A demand-side constraint includes political constraints such as domestic policies that disfavor trade as requiring trade licensing. Market factors have been found to positively and negatively influence market participation. Stated that availability of market information boosts confidence of household who are willing to participate in the market. Poor access to market information results in information-related problem, namely moral hazard and adverse selection which in turn increase transaction costs and hence discourages participation in the market by some farmers.
According to, conduct their study on determinants of smallholder farmers’ participation in potato market in Kofele district, Oromia Region, Ethiopia. They found that potato market price and access to market information positively affects farmers’ participation decision. Since farmers are more responsive to higher prices because they got higher incomes from their produces and Market information is a vital instrument during marketing because it informs the farmers about marketing conditions. Farmers who have price information prior to marketing tend to sell more of their produce than those without. They suggest that effort should be made to deliver proper and adequate market information through strengthening market information delivery network and also link farmers’ cooperatives/groups with proper sources of market information to enhance potato farmers’ regular access to information on market dynamics.
2.3.4. Technological Factors
The importance of resource-saving and yield-enhancing technological innovations and their adoption by farmers are unquestionable in the smallholder market participation process. Households operating with agricultural technologies were participating in markets by affecting his/her productivity. Increasing the productivity of horticultural crops per unit area of land through promoting and delivering technology packages to smallholders that would increase productivity and enables them to link up with crops output market would be a better alternative for smallholder market participation.
2.3.5. Risk
Risk and market participation are interlinked. Agriculture is a risky enterprise, as most agricultural activities are subject to a wide range of risks. Production risk, price risk, financial risk and institutional risk affect market participation. Risk perceptions and management strategies are strongly associated with market participation. Key strategies included monitoring market prices, diversifying sales channels and crop diversifications were more important for subsistence-oriented farmers.
2.3.6. Transaction Costs
Transaction costs refer to costs incurred when looking for a trading partner, negotiate with them, making agreement and enforce it. Transaction costs could be in terms of money spent or the opportunity cost of time spent. Transactions in markets are not frictionless and without cost. Smallholder farmers to fully participate in markets they must also be able to meet both observable and unobservable transaction costs. The observable transaction cost is physical marketing costs such as transport, handling, packaging, and storage. Unobservable transaction costs include cost of information search, bargaining, screening, monitoring agent and coordination, and contract enforcement. Argue that transaction costs significantly hinder market participation whereas better market information stimulates it. Access to markets and roads are expected to reduce marketing costs, thus encourage market participation. they study on determinants of market participation and financial profitability of smallholder dairy farming in BakoTibe, West Showa, Ethiopia. They found household market participation is affected by transaction cost represented by distance to market and urban center. Based on finding they suggested reducing transaction cost and adequate marketing link should be established between rural producers and urban consumers through institutional arrangement as cooperative.
"to be continued in the next part"