Smallholder commercialisation and rural household welfare: panel data evidence from Ethiopia

Abstract

This paper examines the relationship between smallholder commercialisation and rural household welfare. Employing a comprehensive three-wave panel dataset of smallholder maize farmers in Ethiopia, we find a positive association between commercialisation and household income which translates to wealth endowments through asset ownership and accumulation. We also show that commercialisation is associated with poverty reduction by reducing the prevalence of income poverty and the poverty gap. Deep diving into who benefits most from commercialisation, we find that agricultural commercialisation is inclusive and benefits all households. However, the greatest welfare gains accrue to income-poor households, suggesting some potential for reducing rural inequality. These insights support existing evidence that smallholder commercialisation is pro-poor and could be a significant entry point for stirring income growth and development in rural areas. Consequently, supporting poor and marginalised farmers with resources needed to boost agricultural production and commercialisation are relevant steps in the right direction of ensuring integrated rural development.