Investment in agricultural productivity vs rural commercialization: which way to rapid poverty reduction in Ethiopia?

Developing countries identify a set of strategic objectives to promote agricultural production, and assure food security and reduced level of poverty. Two of these objectives are (i) sustainable increase in agricultural productivity, and (ii) accelerated agricultural commercialization. Each of these objectives is backed-up by a long-list of priority investment areas. However, most of these countries cannot satisfy the financial and technical requirements to execute both of the strategic objectives and all of these investment areas. In light of this, taking the case of Ethiopia as an example, this study employs an economy-wide model and assesses the relative efficiency of alternative investment options on agricultural performance and poverty reduction. Results show that the policy instruments cause significantly different production and welfare responses. Productivity enhancing interventions such as input subsidy and irrigation provision have superior welfare consequences, while policies aimed at small holder commercialization have the least effect.