Despite the policy interest of the Ethiopian government to expand teff (Eragrostis tef), wheat and chickpea production for exports, domestic consumption and food and nutritional security for the rural poor the production system is not adequately market-oriented and productivity is at its lowest level. Besides, there is dearth of information on how limited resources in crops production are being used so as to optimize outputs in the country. Thus, this study was conducted to assess resource use efficiency and subsequently to determine the underlying factors which affect inefficiencies in the production of teff, wheat and chickpea by smallholder producers in the central highlands of Ethiopia. Cross-sectional data from a baseline survey conducted by the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) and Ethiopian Institute of Agricultural Research (EIAR) were used. Multistage sampling procedure was used to select a random sample of 700 smallholder crop producers from three districts namely Minjar-Shenkora, Gimbichu and Lume-Ejere. Using Data Envelopment Analyses (DEA) approach, the study established that smallholder farmers in the study areas are technically, allocativelly and economically inefficient with mean technical, allocative and economic efficiency scores of 0.79, 0.43 and 0.31, respectively. A One-Way ANOVA and Kruskal Wallis tests established that there is a significant variation in resource use efficiency across districts. Furthermore, a two- limit Tobit regression model results revealed that while family size, farming experience, credit access, walking distance to the nearest main market, and total own land cultivated during the long rainy season affect technical inefficiency positively and significantly; age of household head was found to have a negative and significant influence on technical inefficiency. The results also showed that whereas economic inefficiency was positively and significantly affected by family size, farming experience and membership to associations; for household heads having a role in their community contributed negatively and significantly to economic inefficiency. Moreover the study results also showed that about 37 percent of the farmers in aggregate operate under decreasing returns to scale. Based on the findings of the study policy implications for improvements in resource use efficiency and productivity were drawn.

1.1 Background of the Study 
Agriculture is the basis of Ethiopian economy which accounts for half of the country’s GDP, 60% of its exports and 80% of total employment (CIA, 2007; Tewodros, 2009). The undeveloped market economy, which started during imperial period (1930-1974), was halted during the military regime (1974-1991) that introduced command economy. However, since the current government took power in 1991, Ethiopia has been pursuing a market- oriented development strategy and implementing policies that began the shift from a state-controlled to a free market economy. The government has embarked on a various programs of economic reform, including trade liberalization, privatization of public enterprises and streamlining the bureaucracy (Birega, undated). The current Ethiopian economic development strategy, Agriculture Development-Led Industrialization (ADLI), identifies the growth of agriculture as a key to the development of other sectors as well (Admasu and Paul, 2010). 

Ethiopian economy is largely dominated by subsistence agriculture and it is smallholder- based (Bishaw, 2009). Moreover, mixed farming dominates the Ethiopian highlands. The smallholder farmers in the Ethiopian highlands are poor; individual land holding ranges between 0.5 and 2.5 ha; family sizes are large; land productivity is low and food requirements are not fully met (Jabbar et al., 2000). Ethiopian highland agriculture is characterized by high dependency on rainfall, traditional technology, high population pressure and the lowest productivity level (Medhin and K√∂hlin, 2008). The cereal-based farming systems have also remained largely unchanged and thus have become unable to sustain the ever increasing population with food and energy demands. As a result, there is severe land degradation and declining productivity in many areas of the highlands (Ayele, 2008). 

According to Gebremedhin et al. (2006) the development of the Ethiopian economy heavily depends upon the rate at which agricultural growth is achieved. This growth, in turn, depends on the rate at which the current subsistence oriented agricultural production system is transformed into a market oriented production system. This transformation process of the agricultural production system forms the basis of the agricultural development strategy of the Government of Ethiopia (GoE). On the other hand, rapid agricultural growth in Ethiopia is expected to have significant benefits for the poor. Achieving agricultural growth of six percent per year from year 2005/06 to 2015 would reduce national poverty from its 40.0 percent in 2005/06 to 18.4 percent by 2015 (IFPRI, 2009). 

According to Alema et al. (undated), the appropriate type of information required to support agricultural sector development in any economy depends on the stage of its development. In the early stage of its development the need focuses on technical information on crops and production conditions. At a later stage socio-economic information requirements are added such as farm structure, costs of production and farm income levels. In further developed agriculture sectors issues such as food safety, quality and social and environmental standards including fair trade and CO2 emissions are added. This variation in need of information implies that the business environment of agric-food production is very dynamic, driven by various and changing needs of consumers and society. 

The government of Ethiopia has put high priority to the development of export-oriented and commercial agriculture, such as horticulture, oil seeds, livestock, dairy and agricultural processing. Various facilitating policies are in place or are being developed (ibid). Thus, agricultural policy makers in Ethiopia need to have insight in the potential production capacity, the actual production and trade flows among others. Therefore, adequate information on resource use efficiency and agricultural productivity; information on production and farm income of smallholder farmers are necessary to make the right decisions in policy concerning agricultural development and food security. 

The Ethiopian Ministry of Agriculture and Rural Development (MoARD) has developed and released (in 2004) a master plan to enhance market- oriented production for priority crops (wheat, barley, teff, lentil, chickpea, cotton, sesame, coffee and spices) and livestock (dairy, meat, poultry, apiculture, sericulture, fisheries, skins and hides) commodities. This master plan incorporates various objectives such as developing a plan to enable the use of modern technologies to efficiently optimize production and productivity (at least doubling productivity of major crops), encourage selected districts to specialize in one or two export commodities and make competitive in the international market and alleviate local food shortage (MoARD, 2004). In the plan, it has been also identified that area under teff cultivation is the largest but its productivity is the lowest among cereal crops. Moreover, much of the produce is consumed locally. However, teff has become one of the export commodities since 1999 and the main importers are Israel, USA, Djibouti, Saudi Arabia and Switzerland (MoARD, 2004). Although Ethiopia produces wheat, the country is a net importer of the commodity (MoARD, 2004). Chickpea is one of the major legumes grown in Ethiopia, mainly by smallholder farmers usually under rain fed conditions. It is one of the main annual crops in Ethiopia both in terms of its share of the total legumes cropped area and its role in direct human consumption. It is largely grown across the highlands and semi-arid regions of the country (Bejiga et al., 1996 cited in Shiferaw and Teklewold, 2007). However, competitiveness of smallholder chickpea producers is restricted by low productivity and poor quality of traditional varieties in the country (Shiferaw and Teklewold, 2007). 

Moreover, the application of chemical fertilizer and improved seeds is quite limited despite Government efforts to promote the adoption of modern and intensive agricultural practices (Chanyalew et al., 2010). There is limited access by smallholder farmers to agricultural inputs, financial services, improved production technologies, irrigation and agricultural markets. These problems combined with poor land management practices have led to severe land degradation. Land degradation is further exacerbated by overgrazing, deforestation, population pressure and inadequate of land use planning. Moreover, expansion of the cropped area to more marginal lands has led to severe land degradation in some areas (ibid). 

Therefore, one key policy question is as why this is the case. Any attempt at answering this question requires knowledge on how economically efficient smallholder teff, wheat and chickpea producers are in the production process in order to identify the potential production capacity of these crops.

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