EfD Discussion Paper,
Environment for Development, University of Gothenburg

Abstract: Smallholder farmers often face prohibitive transaction costs in agricultural commodity markets in developing countries. Consequently, they are only partly integrated into these markets. Although cooperative institutions such as Farmers’ Organizations (FOs) may reduce transaction costs and revitalize agricultural production and commercialization, they rarely have been successful in fully delivering on these promises. Against this backdrop, the World Food Programme (WFP) has recently implemented a multi-year and multi-country pilot to increase smallholder participation in commodity markets. The projects involved investing in physical and human capacities of FOs to aggregate commodities and add value, as well as locally purchasing food aid from FOs. The combination of interventions was expected to increase the relative price of agricultural products, particularly staple crops. In this study, using Ethiopian panel survey data, we causally estimate the income and investment effects of the Ethiopian P4P intervention among smallholders, using an entropy balancing model and a semi-parametric difference-in-difference model. We find that P4P has increased participating smallholders’ per capita consumption, investment in child schooling, and asset holding, relative to comparison farmers. However, we also find an increased share of expenditure on food (which is a measure of vulnerability) and evidence of elite capture by FO managers.

Keywords: P4P; welfare effect; distributional bias; semi-parametric DID

JEL-codes: D02; D23; Q02

Language: English

29 pages, June 1, 2020

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