Abstract:
However, it is inefficient and growers are not in a position to respond to sources of major agricultural risks. Moreover, inadequate coordination of the sector are also highly threatening coffee production and marketing in the study area. The purpose of this study is, therefore, to measure technical efficiency, identify its determinants, identify sources of perceived risks, and choices of governance structure. The data for this study were obtained from a sample of 337 households in Kefa zone of south-western Ethiopia, selected using multistage stratified random sampling technique. Descriptive statistics, Tobit, Multivariate ordered probit, Multivariate probit, and Trivariate Probit models were used to analyze the data. The study revealed that technical efficiency of households ranges from 15 to 94 percent, with a mean of 64 percent, suggesting a considerable inefficiency levels among the studied households. Among the important factors identified, level of education, credit utilization, membership in cooperatives, practice of pruning, use of improved variety, and mobile ownership have negatively and significantly influenced technical inefficiency. The variables such as number of coffee plots, age of coffee tree, and intercropping have positively and significantly determined technical inefficiency. The study further revealed that households perceived production and market risks as the 1st and the 2nd most important sources of risk affecting their coffee farm business. Moreover, financial, institutional, and human related risks have been perceived as the 3rd, 4th, and 5th important sources of risk. Results show that crop and livestock based diversification and pest and disease management as the 1st and 2nd most preferred risk management strategies. In the same vein, households identified non-farm employment, market contracts, and information retrieval and use, as the 3rd, 4th, and 5th relevant risk management strategies, respectively. The Trivariate Probit model result indicated human asset specificity, trust, experience, coffee area to total land ratio, perceived coffee quality, and technical efficiency scores have been found negatively and significantly influencing primary market governance structure choice. Conversely, educational level and physical location appeared to positively and significantly affect primary market type of governance structure. The same model result shows that human asset specificity, connectedness of transactions, uncertainty, and trust are factors influencing households’ choice of bilateral contract type of governance structure positively and significantly. Nevertheless, technical efficiency score has been found to negatively and significantly affect households’ choice of bilateral contract type of governance structure. Similarly, the model result revealed that uncertainty, trust, connectedness of transactions, household size, perceived quality of coffee, and technical efficiency scores are significant factors that affect households’ choice of cooperative type governance structure positively. This study suggests the significance of education, cooperatives, credit utilization, mobile ownership, use of improved coffee variety, and pruning for improving households’ level of technical efficiency. Technically efficient smallholder coffee growers do less likely participate in spot market and bilateral contract based type of transactions, but more likely participate in cooperative type of governance structure. Thus, analysis of governance structure choice can be used as powerful tool in defining intervention strategies in promoting transactions in cooperative type of governance structure.