Impact of contract farming participation on the economic efficiency of malt barley farmers in northwestern Ethiopia

Contract farming (CF) has been one of the strategies employed to enhance the production and productivity of malt barley and substitute imported malt barley in Ethiopia, in addition to addressing marketing challenges. The predicted results also include satisfying domestic malt barley demand, enhancing farmers' welfare, and saving the nation's foreign exchange. Hence, this study evaluated the production efficiency impact of malt barley CF in northwestern Ethiopia. The study was based on the data collected from 398 farmers in two districts, selected using multistage sampling techniques. The probit model showed that CF participation among malt barley farmers was positively correlated with frequency of extension contact, field day, training, cooperative membership, credit, and household size. The maximum likelihood estimator of SPF shows malt barley farm, fertilizer, and oxen power had positive effects on malt barley output. The stochastic cost frontier analysis demonstrated that the total cost of production was positively and significantly impacted by malt barley output and the cost of inputs (labor, oxen, farm, and seed). Propensity score matching (PSM) revealed that CF increased the TE, AE, and EE by 4.52%, 12.34%, and 11.55% for participants, respectively. The findings of this study demonstrate that CF can increase farm households' TE, AE, and EE, which policymakers and other interested organizations may consider as a different development strategy as long as it is adjusted to local conditions.