Potato and Tomato Supply and Yield Responses to Policy in Ethiopia

Abstract

Improving the productivity and profitability of farming activity is considered the key pathway out of poverty for many rural households. Agricultural productivity can be achieved through improving technical progress and increasing irrigation practice utilization. The motivation of this study is to figure out the underlying reasons for the low inelastic potato and tomato supply responses in the short and long-run. The paper attempts to estimate the responsiveness of potato and tomato yield and supply to demand, irrigated area, technical progress and industrial policy in Ethiopia. The study uses the error correction model and VARs with the aid of time series data. The results indicate that tomato supply is found to be responsive to demand signal and industrial policy shock in the short run but not to price incentive in the short-run as predicted. Tomato yield is responsive to demand signal, price incentive and industrial policy shock in the short‐run. The numerical magnitude of error correction coefficient for potato yield is 0.88 indicating about 88% of disequilibrium is corrected in a year. The implied departure from equilibrium is about 12%. Interventions in increasing irrigated area and the technical progress in potato and tomato production impact yield and output significantly. The speeds of adjustment towards equilibrium for tomato yield and output are quite fast, it points towards the highest response to technical progress. The results give emphasis to the need to strengthen technical progress and irrigation water supply through effective policies.