In a significant development aimed at enhancing the country's economy, the research team of the Trade and Investment Center (TIC) at the Policy Studies Institute(PSI) presented a groundbreaking research proposal titled "Cluster Farming and Firms: Impact on Agro-Processing Firms in Ethiopia" on January 5, 2024 at the main hall of PSI.
Dr. Habtamu Tesfaye
The presentation highlighted the potential benefits of cluster farming for agro-processing firms in Ethiopia. Led by a team consisting of Dr. Habtamu Tesfaye, Mr. Workineh Asmare, Dr. Solomon Zena and Dr. Yeshwas Admasu, the proposal aims to explore the impact of the Agricultural Commercialization Cluster (ACC) program on the performance of agro-processing enterprises.
The research proposal, which will be conducted by a team from the Trade and Investment Center (TIC) at PSI, will examine the impact of the Agricultural Commercialization Cluster (ACC) program on agro-processing firms in the country.
The presenter of the proposal, Dr. Habtamu Tesfaye, said the findings of the study would shed light on the impact of the ACC program on productivity, job creation, survival and growth of these firms, as well as its potential to improve the use of local raw materials and promote import substitution.
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PSI learnt that the ACC program launched by the government in 2019 aims to improve the livelihoods of smallholder farmers and promote rural industrialization. Under this program, 30-200 smallholder farmers are organized into clusters that pool their land for government support and economic agglomeration.
Participating farmers commit to growing priority crops and adopting best agronomic practices. The program engages various stakeholders along the crop value chain, facilitating backward and forward linkages.
The ACC program covers 300 districts grouped into 31 crop clusters based on 10 priority commodity value chains, including wheat, maize, barley malt, sesame, teff, avocado, banana, mango, onion and tomato. So far, the program has reached over 3 million farmers in 300 woredas (districts).
Dr Habtamu said key interventions under the ACC program include the provision of improved inputs such as seeds, fertilizers, agrochemicals, irrigation, mechanization and improved access to markets and advisory services.
The program also supports groups of smallholders to pool their resources for agricultural production, coordination and joint marketing of their products. This enables the group farmers to benefit from economies of scale, affordable modern technologies, stronger bargaining power and better market linkages.
Dr. Habtamu highlighted that while previous studies have examined the impact of the ACC program on farm household outcomes such as adoption of agricultural technology, smallholder productivity, farmer incomes, commercialization, poverty reduction and rural welfare, there is limited evidence on how the program affects production firms.
Dr. Habtamu explained that the objective of this study is to examine the impact of the ACC program on the performance of agro-processing firms in Ethiopia. In particular, the study addresses four key questions: (1) Does the ACC program affect the performance of agro-processing firms in terms of productivity, job creation, survival and growth? (2) Through what mechanisms does the ACC program influence firm performance? (3) Does the ACC program improve the use of local raw materials and promote import substitution? (4) Which countries can Ethiopia look to and learn from when it comes to clustering and building linkages with agro-processing firms?
According to Dr. Habtamu, agro-processing firms will be selected for this study because they make a significant contribution to the manufacturing sector in Ethiopia. In 2020, agro-processing companies accounted for 52% of the total manufacturing production in Ethiopia.
These firms heavily rely on agricultural surpluses, so they benefit uniquely from the Cluster Agriculture Program. In addition, the ACC program is linked to rural transformation centers and integrated agro-industrial parks, which allows for better input-output and market linkages between farmer production clusters and production firms.
Dr. Habtamu explained that the study uses a methodology that combines difference-in-difference (DID) and triple difference-in-difference (DDD) models. It compares the performance of agro-processing firms in ACC woredas (districts) with those in non-ACC woredas, taking into account pre- and post-treatment periods.
The data used for the study includes administrative, spatial and survey data to provide a comprehensive understanding of the impact of the ACC program. The research team will use administrative, spatial, and survey data to explore the impact of cluster farming on agro-processing firms in Ethiopia. The administrative data will provide information on the location and timing of the Agricultural Commercialization Cluster (ACC) rollout, enabling analysis of its influence on firms. The Central Statistical Agency (CSA) will contribute location and detailed firm-level information. A survey of 100 post-ACC agro-processing firms will provide firsthand insights into their experiences and impact. By integrating these data sources, the team aims to gain comprehensive insights for informed decision-making on the expansion of the ACC program and sustainable economic development.
Dr. Habtamu said that the findings of this study will provide policymakers with important insights to guide the expansion of ACCs and promote stronger linkages with agro-processing production firms. The study will enhance policymakers' knowledge of the interplay between ACCs and business linkages and ultimately promote business dynamism, job creation, sustainability and expansion. He also said that the study aims to strengthen the linkages between the agro-processing industry and the agriculture sector to promote inclusive and sustainable growth in Ethiopia.
The research team has established a work plan that includes activities such as the development of data collection tools, the recruitment and training of supervisors and data collectors, the data collection itself, data analysis and the preparation of a draft research report. The final report is due to be submitted by October 2024 and dissemination of the results is planned for December 2024.
The team also emphasized that this study has the potential to influence future agricultural policies and investments in Ethiopia and promote a more integrated and efficient agro-processing sector that contributes to the overall economic development of the country.
After the presentation, H.E. Prof. Beyene Petros, Director General of PSI, praised the research proposal as creative and innovative and acknowledged the country's efforts to improve the economy under the leadership of Prime Minister Dr. Abiy Ahmed. He expressed his interest in learning more about the difference between cooperative farming and cluster farming.
Prof. Beyene also said that the team's research proposal was considered creative and innovative and fit into the country's ongoing efforts to improve its economy. Prof. Beyene Petros expressed particular interest in understanding the difference between cluster farming and cooperative farming as he highlighted the importance of this knowledge to the Ethiopian agricultural sector.
PSI learnt that cluster farming and cooperative farming are two distinct approaches in the agricultural sector, each with its own characteristics and implications. Understanding the difference between these two models is crucial for the Ethiopian agricultural sector's development and decision-making processes
Participants in the research proposal raised several questions and provided valuable feedback to the researchers. One question concerned was how farmers' adaptation to the clusters should be managed, whether through policy coercion or through their voluntary participation. Participants advised the researchers to conduct an initial baseline survey to understand the different status of household farmers involved in cluster farming. They also suggested including a sustainability plan in the research proposal.
Participants pointed out that it may be difficult for researchers to quantify the extent and source of cluster farming and raised the issue of measuring the impact of cluster farming. Some participants recommended conducting a preliminary survey to gain a brief understanding of the study area and how to assess the growth of cluster farming.
The role of government in pricing was emphasized and participants urged researchers to consider this factor in their interventions. They also asked for clarity on the types of grains used in cluster farming such as barley, wheat, sesame and others.
Concerns were raised about the methodology and tools used to collect data. Participants wanted to know how researchers plan to collect data . One participant suggested that farmers participating in cluster farming should be encouraged to start their own factories instead of relying on others.
The presenter expressed his gratitude for the valuable comments and acknowledged that they will give them an opportunity to refine and improve the study.
In conclusion, Dr. Habtamu said that the constructive feedback from the participants will be carefully considered to improve the research proposal and ensure that it effectively addresses the impact of cluster agriculture on agro-processing firms in Ethiopia.