Are smallholder farmers benefiting from malt barley contract farming engagement in Ethiopia?

Abstract Background It is believed that in Ethiopia barley has been cultivated before 3000BC. Among the cereals, it is ranked in fifth place and the most important crop next to teff, sorghum, and wheat in the country. Different works of literature highlight that engagement in contract farming is one of the innovations promoted to tackle technology constraints of the smallholder farmers, as a possible solution to raising productivity and linking smallholders in the emerging modern marketing chains. Associated with the rapid rate of urbanization in the country, there is a high demand for malt barley which is resulting high expansion of beer factories. Consequently, in the study area, many farmers got into a contract agreement with Assela malt barley factories. Recent studies conducted on malt barley in Ethiopia gave much emphasis to the value chain aspect of malt barley. Therefore, the main motive behind this study was to fill the empirical literature gap in the field by giving much emphasis on the impact assessment of malt barley contract arrangement on income and food items dietary diversity of the respondent households. Methodology To attain the study objectives, both primary and secondary data were collected and used. Randomly selected 312 households comprising 127 households engaged in malt barley contract farming arrangements and 185 non-contract households were the source of primary data for this study. Secondary data were collected from a review of different works of literature. Both descriptive and econometric models were used to analyze the primary data using Stata software version 14. The propensity score matching model was applied to examine the impact of malt barley contract farming engagement on the income and dietary diversity of the respondents. Result It was found that family size, credit use, livestock holding, malt barley production experience, frequency of extension contact, and land allotted for malt barley production positively determine the probability of participation in malt barley contract farming arrangement. Contrary to this, distance to the malt barley collection centers negatively determine the probability of participation in malt barley contract farming. The ATT estimation of the PSM indicated that participation in malt barley contract farming has a positive impact on the income and dietary diversity of the respondent households. Conclusion Participation in contract farming had a positive and significant impact on the annual income and dietary diversity of the smallholder households. The sensitivity analysis result showed that the impact results estimated by this study are insensitive to unobserved selection bias and the result obtained shows the true impact of contract farming on the income of the households. Therefore, concerned bodies working on malt barley production aspects as a development intervention should work to encourage non-contract farmers to engage in this activity.