The cost-benefit analysis was often used to assess the profitability and estimate the sensitivity of the production system. In this study, we investigate the costs and benefits associated with the smallholder production system for the high potential district of tef. Among cereals, Tef (Eragrostis tef) is indigenous to Ethiopia in its origin and it is an important crop in the Ethiopian smallholder production system because of its dual function both as a staple crop that improves food security and as an income-generating crop. The objective of this study was to investigate the association of production cost and profitability of output and its break-even yield, break-even sales price, margin of safety and efficiency ratio at the smallholder’s production system. This study applied the Partial Budget Analysis (PBA) framework for the economic analysis for their benefit returns. The analysis was based on survey data from Ada’a, and Minjar-Shenkora with a total household sample of 260 potential tef producers with multiple stage sample selection methods was implemented and at last simple random from the household, the selection was used. Results show that total man-day for land preparation was found 9.16 while the total cost of labor was 1,482.14 Ethiopian Birr (53.6 USD) with exchange rate of US$ 1 = ETB 27.50, the labor cost for different levels of plowing varies accordingly with seasonality; while the total cost of oxen rent per hectare was found 3,540.56 ETB (128.75 USD). The total labor cost for pesticide application per ha was 1557.12 ETB (56.62 USD; yet the frequency of application varies depending on the infestation. The average weeding frequency was two times in the season of production while the average man-day and average total cost was 6.16 and 1,283.93 ETB (46.69 USD) per ha respectively. The total average grain production was 1949.44 kg, while the straw was 8883.39 kg, while the average district market unit price was found 20 and 2.75 per kg respectively. With the sensitivity analysis of 3 cases with the first one having estimated the price shock in input and output of 10% ∆ increase; the TVC shifts from initial 36,386.1 birr to 40,024.71 while the TRV and Net return were found 69,804.35 and 29,779.64 birrs respectively. In this shock BCR was found 1.74, BEY was 1,819.31 kg, BEP was 20.53 Birr/kg to attain the break-even point. Labor productivity was found to be 101.16 per man-day in the production process; the while efficiency ratio was found to be 0.57 Birr to generate 1-birr revenue in small scale tef production potential area of Ethiopia, yet the optimal ratio is 0.5 birr. The margin of safety was found 130.13kg that producer attains before the loss or the margin of safety in percent was found to be 6.68% for potential area tef producer farmer per ha in Ethiopia.

Keywords: Tef; Total variable cost; Break-even yield; labor productivity; Efficiency ratio; Margin of safety; Rate of return;