Forced to Sell Early? Smallholder Farmers’ Access to Credit and Commodity Marketing Behaviour in Rural Ethiopia

Large and predictable seasonal crop price variations in local markets offer African farmers substantial intertemporal arbitrage opportunities. But smallholder farmers are not commonly observed taking advantage of these arbitrage opportunities. In this paper, we study the effect of rural credit on shaping farmers’ commodity marketing behaviour as related to the timing of crop sales. Using a large dataset from Ethiopia and an instrumental variables (IV) approach, we find that households who accessed credit are more likely to sell their crops early at substantially depressed prices. Households pay a financial penalty for selling early, as they forego an expected 31% increase in crop revenues over three to six months. Our results highlight a hidden but potentially relevant cost of farmers’ participation in credit markets. Overall, current designs of rural credit products exacerbate the negative impacts of binding liquidity constraints and seasonal crop price cycles on poor households.