Beyond subsistence? The role of rural cooperatives in driving smallholder commercialization in Ethiopia

Abstract

The transition from subsistence to market‐oriented agriculture holds the potential to boost rural economic progress and improve the well‐being of the rural poor in developing countries. Despite this potential, there is limited understanding of the key drivers for smallholder commercialization. In this study, we utilize comprehensive three‐wave panel data collected from three major maize‐producing regions in Ethiopia to examine the role of agricultural cooperatives in promoting smallholder commercialization. Employing a double‐hurdle model, we smallholder commercialization as a two‐step decision process involving market participation and the extent of participation (sales quantity), conditional on market participation. Unobserved heterogeneity is accounted for using a correlated random effect procedure, and the potential endogeneity of cooperative membership is addressed through a control function approach. The findings reveal that cooperative membership increases the probability of market participation and the intensity of sales. However, further analysis demonstrates a heterogeneous relationship between cooperative membership and commercialization, underscoring the importance of targeted interventions to boost the contribution of cooperatives to rural development through commercialization. The main findings highlight that promoting smallholder commercialization through farmer groups necessitates implementing policies to increase cooperative membership, coupled with allocating resources that enhance the contribution of agricultural cooperatives [EconLit Citations: Q12, Q13, Q18].