On the Joint Estimation of Technology Adoption and Market Participation under Transaction Costs in Smallholder Dairying in Ethiopia

We investigated crossbreeding adoption and milk and milk product market participation using farm household survey data in the central highlands of Ethiopia. We estimated a multivariate probit model to account for correlations across the choice of crossbreeding technology and market participation and to study the effect of transaction costs on participation. Our empirical results suggest that technology adoption and market participation decisions are correlated.We find complementarity between crossbreeding adoption and fresh milk marketing, and substitutability between fresh milk and milk product marketing. We also find that participation in fluid milk marketing is more likely if the milk collection point is close by. If farmers are far from the collection point, however, they are more likely to sell milk products (such as cottage butter and cheese). Adoption of crossbreeding is less likely if farmers are more risk averse. The study provides information for policy options to improve farmers’ returns to agricultural production.