Modelling Investment Optimization on Smallholder Farms through Multi-criteria Decision Approaches: An Example from Ethiopia

We use data from Ethiopia Rural Household Survey and the Ethiopian Central Statistics Agency to demonstrate a set of techniques for estimating optimal investment allocation in smallholder farming.  The approaches treat farming tasks, constraints, and investments as a portfolio problem, characterized by multiple competing objectives.  We formulate several versions of the multi-objective problem and solve them in three alternative ways; 1) using standard Markowitz portfolio optimization, 2) using a weighted goal programmimg model, and 3)  a multi-horizon mean variance goal programming model, estimating all model parameters using real data.  The main benefit of the goal programming formulation is the possibiity to simplify in a single criterion problem complex situations in which the Decision Make (MD) faces a trade-off beteen two or more objectives.  We discuss the importance of portfolio allocations for smallholder farmers in minimizing risk and increasing return, and discuss how these approaches provide a framework that can be extended to practical applications in smallholder farming.