Agriculture is the mainstay of the Ethiopian economy contributing 45% to GDP and 80% to employment opportunity. Majority of the farmers in Ethiopia are smallholder farmers possessing less than a hectare of land. Land transfer mechanism in Ethiopia is limited to temporal land rental market and lease. Land sale and long term lease by farmers is outlawed by proclamation. The present study examines the technical efficiency of farmers who are operating under different tenurial structures and explains why some farmers (plots) are more efficient than the others. A stochastic frontier was used to estimate technical efficiency using data from 1786 parcel of land from 3 districts located in Oromia and Southern Regional Sates of Ethiopia The result of the analysis revealed that, the plot level technical efficiency ranged from 0.208 to 0.932 with mean value of 0.809. The study contested Marshalian conception of share tenancy as an inefficient institutional arrangement; it was found that, both share cropped in and out plots were more efficient than pure owner operated plots. The possible explanation for this finding is that, most of the share cropping arrangement was made between blood relatives that might evade the pervasive moral hazard problem in such tenurial arrangements. In addition most of the share cropping recipients was near landless and the productive use of the land is the only-option for them to meet their food security. The results of technical inefficiency model showed that, with the exception of slope other plot level characteristics which include; soil type and soil quality have significant positive effect on technical efficiency. While receiving land certificate, investment on soil conservation measures significantly reduces technical inefficiency, shallow soil depth has positive effect on technical inefficiency. The result accentuates that; the government should encourage temporal land transfer from less productive to efficient and from land surplus to land constrained households through land market.
Key words: Smallholder, stochastic frontier, technical efficiency, land tenure reform.
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