Effect of farm size on technical efficiency: a case study of the Moretna-Jirru district in Central Ethiopia

English: The main objective of the study is to analyze the effect of farm size on farm efficiency at household level in cereal based farming systems and to suggest policy recommendations. The survey was conducted in the Moretna-Jirru district of Ethiopia during the 2000/2001 cropping season. The district was selected for this study on the basis of the relatively longer experience of farmers to use new technology, the number of crop growers and the high potential for crop production. As part of the methodology, a structured questionnaire was developed and used during personal interviews with farmers. The collected data was analyzed using statistical package SPSS Version 10.1. The empirical model used for the estimation of technical efficiency of smallholders in this study was the stochastic production function. The stochastic frontier model results revealed that land area and seed application rate contributed the most to growth in wheat yield whereas increase in land size and application of urea led to statistically significant increases in tef yield. In view of the research objectives the major results/findings of the study were: • The stochastic frontier model analysis revealed that large farms were technically more efficient than small farms regarding both wheat and tef production; • The mean technical efficiency of wheat was calculated to be 0.83 for large farms and 0.79 for small farms (P= .001). The mean technical efficiency of tef for large and small farms was calculated to be 0.74 and 0.68, respectively (P= .001); • The average technical efficiencies of wheat and tef were calculated to be 80.85 % and 70.72 %, respectively. Under the current technology, farmers can thus increase the actual output levels of wheat and tef by about 19.1% and 29.3%, respectively, to become 100% efficient. The challenge remains to decrease technical inefficiency factors and to raise the production level towards the frontier production level. According to the model analysis, land size remains a key variable explaining differentiation in output, especially in keeping farmers near to or on the production frontier. Reduction in farm size and land fragmentation have contributed to technical inefficiencies. From the disaggregated data by size of holding, the conclusion is that larger size holdings perform better with regard to technical efficiency, food production and income generation than smaller size holdings, irrespective of the extension program. The results that emerged from the technical efficiency differentials between small and large farm groups in the Moretna-Jirru district of central Ethiopia have policy implications. A number of policy interventions need to be made by government if smallscale farmers are to improve technical efficiency. These include, among others, that policies on land size and land distribution must be revisited and that further studies are needed to determine the minimum farm size to support farm households. Frequent redistribution and allocation of land has resulted in fragmentation, tenure insecurity, and in too small farms to support livelihood. This in turn contributed to decrease in farm productivity and efficiency. It is important to note that small farms can make a difference in food self-sufficiency schemes, but they will never be big providers of food and fiber for the fast growing population. Small farm producers will fill niche consumer markets. Providing solutions for the root causes of rural poverty and changing the gloomy situation of Ethiopian farmers requires multiple strategies. Therefore, future work in this area should begin by posing questions differently. For example, What is the best path to sustainable agricultural development? What characteristics must a farm possess for it to be sustainable, socially responsible, environmentally sound and economically viable? What is the optimal farm size and how could size be measured in the sustainable era? Such questions do not have easy answers. They do, however, reveal some of the shortcomings of this analysis and can guide further work in this area.