The impact of market channel choice on economic efficiency and food security: Evidence from smallholder dairy farmers in Ethiopia

This study assessed the impact of smallholder dairy farmers’ participation in milk marketing channels on economic efficiency and food security in the Sidama region of Ethiopia. A multistage stratified random sampling technique was employed to select a representative sample of 361 smallholder dairy producers from three districts. A two-stage multinomial endogenous switching regression (MESR) model was applied for impact analysis, as it accounts for both observed and unobserved heterogeneity among farm households. The second-stage estimation of the MESR model revealed that participation in different milk marketing channels significantly improved both economic efficiency and food security among smallholder dairy producers, compared to their non-participating counterparts. Non-participant households could also improve these outcomes if they chose to engage in marketing channels, as indicated by the counterfactual case. Therefore, integrating smallholder, non-participant dairy farmers into alternative marketing channels can thus contribute to enhanced outcomes in both areas. Overall, the study concludes that households participating in alternative marketing channels experience higher levels of economic efficiency and food security than those who did not participate. In particular, smallholder dairy farmers involved in dairy cooperatives achieve relatively greater improvements in economic efficiency and food security than those who choose other alternative marketing channels. As a result, government interventions and development organizations should implement awareness campaigns and outreach programs to inform non-participant farmers about the benefits of joining marketing channels in general, and dairy cooperatives in particular. Policy makers should also prioritize the development of dairy cooperatives by providing legal, technical, and financial support to ensure inclusive participation and long-term sustainability through formation and strengthening of dairy cooperatives. • The MESR model captures the selection bias in channel choice. • Smallholder dairy farmers benefit from participation in market channels. • Economic efficiency and food security are significantly higher among households choosing dairy cooperatives. • Non-participating households would improve economic efficiency and food security by engaging in marketing channels, particularly dairy cooperatives. • Policy makers should also prioritize the development of dairy cooperatives by providing legal, technical, and financial support to ensure inclusive participation and long-term sustainability through formation and strengthening of dairy cooperatives.