Blessing in disguise: Cluster farming and smallholder commercialization in Ethiopia

Cluster farming is increasingly recognized as a viable means of improving smallholder economic integration and commercialization in many developing countries. It acts as a suitable avenue to implement development projects, disseminate extension programs, connect farmers to input and output markets, and provide access to capacity building and innovations, inter alia. However, little is known about their impacts on smallholder welfare and livelihoods. This study examines the relationship between cluster farming and smallholder commercialization using a large-scale survey of 3969 farm households in Ethiopia producing high-acreage crops such as teff, wheat, maize, and barley. Using endogenous switching regression and instrumental variable estimators, we show that cluster farming is positively and significantly related to smallholder commercialization proxied by commercialization index, market surplus value, and market price. These findings are robust to different measurements of cluster farming and alternative specifications. We perform some heterogeneity analysis by disaggregating households based on their scales of production to understand who benefits most from cluster farming. Our findings suggest cluster farming is positively associated with commercialization outcomes for all households despite these disaggregated scales of production. However, the associated gains tend to be more prevalent among medium and large farms. Despite these disparities, our findings provide evidence that cluster farming is crucial in improving smallholder commercialization and may be a critical entry and leveraging point for development policy. We thus lend support to initiatives and plans that seek to upscale cluster farming as they have the potential to improve commercialization with ensuing impacts on rural livelihoods.