MODELING THE MOTIVATION FOR DIVERSIFICATION ON SUBSISTENCE FARMS IN THE ETHIOPIAN HIGHLANDS

Mathematical programming analysis has been quite effective for commercial farm planning in developed countries, but less so for subsistence farms in developing countries. In particular, it is difficult to reproduce the level of diversification observed on subsistence farms using a simple profit maximization framework. This paper proposes an alternative to the minimum consumption requirement approach for modeling subsistence farming households by treating consumption explicitly through a demand system motivated by Cobb-Douglas utility. A typical, linear programming-based production system is incorporated, allowing for the production of crops and livestock subject to constraints on resource availability. The approach successfully predicts consumption behavior of subsistence households in Holetta area of the Ethiopian highlands, but diversification of the cropping plan occurs only when marketing behavior is incorporated in terms of restriction on purchases of major consumption goods. The results suggest that integrating markets economy to improve their performance may improve the welfare of poor households in developing countries. This requires improvement of both input and output markets.