Risk Implications of Farm Technology Adoption in the Ethiopian Highlands

Abstract

In countries where insurance and credit markets are thin or missing, production and consumption risks play a critical role in the choice and use of production inputs and adoption of new farm technologies. In this paper, we investigated impacts of chemical fertilizer and soil and water conservation technologies adoption on production risks, using a moment-based approach and two years of cross-sectional data. A pseudo-fixed-effect model was estimated to generate first, second, and third moments of farm production. Our results revealed that fertilizer adoption reduces yield variability, but increases the risk of crop failure. However, adopting soil and water conservation technology has no impact on yield variability, but reduces the downside risk of crop failure. The results underscore that the risk implications of farm technology adoption vary by technology type. Furthermore, policies that promote adoption of fertilizers should be complemented by desirable instruments that hedge against downside risk. In that respect, if properly implemented, the safety net program and the weather insurance programs currently piloted in some parts of Ethiopia are actions in the right direction.