Contract Choice and Poverty in Southern Highlands of Ethiopia

Sharecropping is a land lease contract in which a tenant and a landlord share the final output as compensation for the labor supplied by the tenant and the land supplied by the landlord. In addition to labor and land, farmers in many rural areas form informal cost-sharing contracts for market-purchased inputs. The fact that land is state-owned property under the current Ethiopian constitution implies that land acquisition is via membership in a particular peasant association (PA), allowing only parental transfer of user rights to the heirs and participation in land rental markets (sharecropping and fixed rent contracts), while formal land sales are prohibited. The 1974 Ethiopian land reform implied a radical redistribution of land from feudal landlords to all community members. Land was then allocated based on household size. Land renting as well as hiring of labor was prohibited, whereas frequent land redistributions were implemented to maintain the egalitarian land distribution and allocate land to new households. With the change in government in 1991, a more market-friendly policy was introduced and short-term land renting was again allowed. Despite the policy barriers related to access and transfers of land, Ethiopian farmers have a long history of renting land through sharecropping and fixed rent contracts. This has continued even after the egalitarian land distribution was introduced. Our study revealed a particularly rich variation in cost-sharing sharecropping arrangements in southern Ethiopia, yet there have been no studies trying to explain the rationale of this variation within and across local communities. This is what we try to do in this chapter.