World Development Vol. 27, No. 4, pp.

739±752, 1999
Ó 1999 Elsevier Science Ltd
All rights reserved. Printed in Great Britain
0305-750X/99 $ ± see front matter
PII: S0305-750X(98)00159-4

Soil Erosion and Smallholders' Conservation

Decisions in the Highlands of Ethiopia
BEKELE SHIFERAW and STEIN HOLDEN *
 Norway
Agricultural University of Norway, As,
Summary. Ð Soil erosion is one of the most serious environmental problems in Ethiopia.
Coupled with growing populations, falling per capita food production and worsening
poverty, loss of productive land due to land degradation undermines rural livelihoods
and national food security. Despite their awareness of the erosion problem, peasants'
investments in land have been limited. We use an applied nonseparable model to sim-
ulate conservation decisions. Pervasive market imperfections, poverty and high rates of
time preference seem to undermine erosion-control investments. Lack of technologies
which provide quick returns to subsistence-constrained peasants also seem to deter such
investments. Lower private incentives to internalize the intertemporal land degradation
externality may require public intervention. Ó 1999 Elsevier Science Ltd. All rights
reserved.

1. INTRODUCTION World Bank, 1996; Dasgupta and MaÈler, 1994;

In most of the low-income countries, agri-
culture remains one of the largest sectors in the
economy both in terms of its contributions to
the GDP and generating employment. In most
African countries, agriculture is the funda-
mental economic activity accounting for on
average 20±30% of the GDP. About two-thirds
of the sub-Saharan population lives in rural
areas and derives its main income from agri-
culture (World Bank, 1996). The share of the
poor living in rural areas is even larger. In any
single year, the agricultural sector in Ethiopia
accounts for over 50% of the GDP and pro-
vides livelihood for over 80% of the population.
As in many sub-Saharan countries of Africa,
smallholder farmers cultivating microplots with
traditional technologies produce most of the
agricultural output. The smallholder sector
provides some 90% and 98% of the crop and
livestock outputs, respectively. Peasant house-
holds, representing the largest segment of the
population, are directly dependent on the use of
land resources for their survival.
In agriculture-based poor economies, the
agricultural sector, therefore, represents the
major economy-environment link. Poverty,
population growth, agricultural stagnation,
and resource degradation in the developing
world are often interlinked (WCED, 1987;
739
Reardon and Vosti, 1995). Understanding the
roots of environmental degradation and the
deepening poverty, and designing of appropri-
ate policies and strategies for reversing the
problem, therefore, requires careful analysis of
the microeconomic behavior of smallholder
farmers.
In Ethiopia, land degradation, mainly due to
soil erosion and nutrient depletion, has become
one of the most important environmental
problems. Coupled with poverty, fast-growing
population, policy failures, and social unrest,
land degradation poses a serious threat to na-
tional and household food security. Due to
inherently good soils and relatively abundant
rainfall, the highlands (>1500 m altitude) have
a good agricultural potential. These highlands
constitute 43% of the country but account for
95% of the cultivated area, and support about
* We would like to thank the Soil Conservation
Research Project for providing us some of the data
and for sponsoring the ®eld work in Ethiopia. Funds
were provided by the Norwegian Universities Commit-
tee for Development Research (NUFU) and the Ecology
and Development Program. We have bene®ted from
comments by anonymous reviewers. The usual disclaim-
er applies. Senior authorship is to the ®rst author. Final
revision accepted: 21 September 1998.
740 WORLD DEVELOPMENT
88% and 75% of the human and livestock
populations. The problem of accelerating land
degradation is especially serious in the high-
lands (FAO, 1986; Hurni, 1993; Grepperud,
1996). Average soil loss rates on croplands have
been estimated at 42 t/ha/year but may also
reach up to 300 t/ha/year in individual ®elds
(Hurni, 1993). This by far exceeds the natural
rate of regeneration. FAO (1986) estimates that
some 50% of the highlands are signi®cantly
eroded, of which 25% are seriously eroded, and
4% have reached a point of no return.
In making their land use and conservation
decisions, smallholders often face constraints
leading to endogenous shadow prices due to
market imperfections. High transaction costs,
risk, liquidity and subsistence constraints re-
lated to poverty in rural economies often link
resource use and consumption decisions. The
farm household perspective may thus o€er a
suitable framework for the study of small-
holders' resource use and conservation deci-
sions (Reardon and Vosti, 1992). We therefore
use a nonseparable farm household modeling
approach to study resource use and conserva-
tion decisions of smallholders. Peasants' ratio-
nal responses are simulated through a model
which jointly determines production, con-
sumption and soil conservation decisions. We
analyze the short and long-term responses to
changes in (a) the productivity impacts of
conservation technologies, (b) the on-site user
cost of soil erosion, and (c) capital/credit con-
straints for fertilizer based on data collected in
the highlands of Ethiopia.
The rest of the paper is organized as follows.
Section 2 reviews the soil erosion problem, its
causes, and constraints facing ongoing conser-
vation e€orts. Section 3 outlines the production
system and markets in the study area. Section 4
sets out the conceptual framework for the an-
alytical model presented in Section 5. Section 6
presents the analytical results and discussions.
We conclude in Section 7 and highlight impli-
cations for sustainable agricultural develop-
ment in smallholder-based economies.
2. SOIL EROSION AND THE RESPONSE
As stated earlier, vast areas of the highlands
have been classi®ed as su€ering from severe to
moderate soil degradation. Increasing intensi-
®cation and continuous cultivation on sloping
lands without supplementary use of soil
amendments and conservation practices posit a
serious threat to sustainable land use. The level
of use of purchased yield-enhancing inputs is
very low; improved seeds, irrigation, and fer-
tilizer are used only on 0.7, 1, and 25% of the
cultivated ®elds (CSA, 1996). Lack of technical
change and degradation of the resource base
mean that the productivity of both crops and
livestock is very low. Higher opportunity costs
for fuel and feeding livestock hamper the tra-
ditional use of dung and crop residues for re-
generating soil fertility. Dung and agricultural
residues provide up to 50% of the household
energy supply. Increasing scarcity of cultivable
land due to growing populations and land de-
gradation also hinder peasants from leaving
land idle to recuperate its fertility through fal-
lowing. Forest resources cover about 3% of the
land area of the country, but the annual rate of
deforestation exceeds a€orestation by up to 15
times.
Despite the increasing land degradation
problem, the issue of conserving agricultural
land was largely neglected until the early 1970s.
But awareness of the problem was incited by
the devastating famine in Wello in 1973±74.
E€orts to install conservation measures on
erodible lands were thus initiated following the
1975 land reform which provided peasants us-
ufruct rights to land. The establishment of
Peasant Associations (PAs) was also instru-
mental for mobilizing labor and assignment of
local responsibilities for rehabilitation e€orts.
The e€ort was further expanded with the in-
volvement of the World Food Program and
others since the early 1980s, which provided
food-for-work (FFW) incentives for conserva-
tion activities. The conservation program fo-
cused on rehabilitating eroded lands through
a€orestation and construction of soil-stone
bunds. Some 10% of areas (in the highlands)
requiring conservation were thus treated
through these programs. The ad hoc initiative
was not, however, supported by scienti®c data
and lacked proper integration with the overall
land use system. Some research carried out to
bridge this gap indicates that physical struc-
tures may help reduce the rate of soil loss and
runo€, but their net e€ect on yields could be
negative due to the loss of productive land (see
Table 1).
The success of past conservation e€orts, as
witnessed in recent years, however, has been
limited (Holden and Shiferaw, 1998). The suc-
cess of the a€orestation program was low, and
peasants have often dismantled conservation
structures built on their farmlands. Top-down
 SOIL EROSION THE HIGHLANDS OF ETHIOPIA 741

Table 1. Mean soil loss and crop yields from di€erent conservation measures at Anjeni, East Gojjam

Technology Crop Slope (%) Soil loss (t/ha) Yields (kg/ha)

Traditional Te€ 12 179 285

Graded bunds Te€ 12 117 255
Graded Fanja-juu Te€ 12 46 195
Grass strips Te€ 12 16 263
Traditional Wheat 28 142 595
Graded bund Wheat 28 90 610
Graded Fanja-juu Wheat 28 81 717
Traditional Faba beans 12 79 380
Graded bund Faba beans 12 31 380
Graded Fanja-juu Faba beans 12 28 478
Grass strips Faba beans 12 24 515

Source: Soil Conservation Research Project experimental data on farmers' ®elds.

planning, lack of participation and proper
planning, have contributed to the ineciency of
past conservation programs. Unless their own
incentives for resource conservation are high,
farmers often switch onto old practices after the
projects end. Thus, one needs to look into
smallholders' own incentives to invest in land
quality improvement, and factors that stimu-
late adoption of conservation technologies
mainly through own initiative. This study is an
e€ort in this direction.
3. THE STUDY AREA
The data were collected in Ada district (East
Shewa) in 1994. A strati®ed random sample of
120 households from three PAs was surveyed
some 25 km from Debre Zeit, the nearest town
on the Addis Abeba-Nazareth highway.1 A
large set of data related to consumption, pro-
duction, and conservation decisions of peasant
households was generated. The average house-
hold and farm sizes were 5.3 persons and 2.3 ha
(see Table 2).
The production system in Ada is of the tra-
ditional crop-livestock system of the highlands.
The altitude at the survey site is over 1,900 m,
and annual rainfall at the nearest town aver-
aged 830 mm. The rainfall pattern is generally
unimodal with over 70% falling between June
and September. Agriculture is rainfed, but
drought and crop failures are uncommon. Land
is cultivated at the onset of the rainy season
using a pair of oxen and a traditional imple-
ment (maresha). Land cover during this period
is poor and erodible soils on the slopes are
easily washed down (some of which may be
deposited in lower-lying cultivable lands), but
introduced conservation practices are not used.
Only (less e€ective) traditional methods of
erosion-control (e.g., drainage furrows and cut-
o€ drains) are used together with crop rota-
tions.
Smallholders cultivate a number of parcels
distributed mainly over two slope and soil

Table 2. Estimated (nominal) rates of discount among di€erent groups of smallholders, Ada district

Oxen owner- Sample Family size Farm size Average Discrete time
ship size (kert) a income (Birr) b
rate of discount (%) c

0 30 3.2 4.5 1951 120

1 30 4.8 7.4 2813 84
2 30 5.2 8.2 3086 69
>2 30 7.8 11.3 5875 32
All 120 5.3 7.8 3431 71
a
Kert is the local area unit. An average of some 20 sample plots measured during the survey indicates that a kert is
about 0.3 ha.
b
Birr is the Ethiopian currency. In 1994, 1 US$  6 Birr.
c
The average discount rate when adjusted for in¯ation will be about 54%.
742 WORLD DEVELOPMENT

types: the red soils on sloping uplands, and
vertisols on shallow slopes at the foothills
(lowlands). The average land holding is about
2.25 ha, with 1.25 and 1 ha on uplands and
lowlands, respectively. Fallowing is very rare.
A number of cereals and pulses are produced,
but only te€ and wheat are grown on both types
of land. Te€ is the major staple and cash crop,
other crops are mainly produced for home
consumption. Pulses are often rotated with ce-
reals to recoup soil fertility. This practice may
indicate constraints in using animal manure or
chemical fertilizers for soil fertility mainte-
nance. Better-o€ households maintain some
livestock. The average production activities are
summarized in Table 3.
Rural infrastructure in Ethiopia is generally
poorly developed. Due to its proximity to the
major cities, some markets in Ada are relatively
well developed. Formal credit was available for
fertilizer at a rate of 12%. Annual rates of in-
terest in informal markets reach as high as
100%. Estimated nominal discrete rates of time
preference among the surveyed households av-
eraged 71% (see Table 2 and Holden, Shiferaw
and Wik, 1998). Long-term loans for invest-
ment are nonexistent. As in the rest of Ethiopia,
peasants hold usufruct rights to land, thus land
is neither traded nor used as collateral. Infor-
mal short-term rental contracts for land exist,
but such practices lack legal basis. Important
farm activities are undertaken by family labor,
while some labor is also hired during peak
seasons to complement family labor. Labor
markets are thus inactive during part of the
year, and opportunities for o€-farm work are
limited. Output prices are low after harvest but
begin to soar thereafter as supply diminishes.
The high negative covariation between supply
and prices in demand-constrained local markets
introduce a covariate risk in price, which may
also raise the shadow value of subsistence.
Problems of storage and imperfections in cap-
ital markets prohibit purchases when prices are
low. Transaction costs in marketing output
could also be substantial. Apart from prestige
associated with staples produced on-farm,
market imperfections may further encourage
self-suciency in certain farm products. Thus,
peasants tend to have diverse production pat-
terns to satisfy their consumption needs.
4. CONCEPTUAL FRAMEWORK
As smallholder farmers simultaneously en-
gage in production and consumption, the farm
household approach has become quite popular
in modeling their economic behavior (Singh,
Squire and Strauss, 1986; de Janvry, Faf-
champs and Sadoulet, 1991; Delforce, 1994). If
all but one market exist, all prices are exoge-
nous and decisions can be taken sequentially,
production and labor demand ®rst and con-
sumption and labor supply decisions later
(Singh, Squire and Strauss, 1986). Separability

a
Table 3. Smallholder production activities and estimated user costs of soil erosion in Ada district

Crop production (kert) Livestock holdings

Crops Upland Lowland Total area Animals Heads

Te€ 3.24 2.38 5.62 Cows 0.83

Wheat 0.51 0.43 0.94 Oxen 1.77
Barley 0.16 ÿ 0.16 Heifers 0.47
Field peas 0.12 ÿ 0.12 Bulls 0.38
Faba beans 0.58 ÿ 0.58 Calves 0.70
Lentils 0.07 ÿ 0.07 Sheep 0.65
Chick peas ÿ 0.60 0.60 Goats 1.30
Rough peas ÿ 0.37 0.37 Donkey 1.00
Total area cultivated 4.67 3.78 8.46 Horses 0.07

Estimated user costs (Birr per ton of eroded soil)

r ˆ 0.54 2.5 1.0
r ˆ 0.20 6.75 2.7
r ˆ 0.10 13.5 5.4
r ˆ 0.05 27.0 10.8
a
r is the real discount rate used to compute user costs.
 SOIL EROSION THE HIGHLANDS OF ETHIOPIA
implies that production and labor demand de-
cisions are insensitive to consumption prefer-
ences and asset endowments, and activity
choice is entirely determined by pro®t motives
as dictated by market prices. But when markets
are imperfect or nonpro®t motives (including
consumption choices) a€ect production and
resource use decisions, as in our case study
area, the relevance of the separable approach is
often questioned (de Janvry, Fafchamps and
Sadoulet, 1991; Delforce, 1994).
Hence, when some markets are imperfect or
missing, production and consumption decisions
are interdependent, linked through endogenous
prices which satisfy the subjective equilibrium
of the household. When markets are imperfect
and goals other than pro®t maximization a€ect
land use decisions, a pure pro®t-maximizing
framework often fails to re¯ect real patterns of
cropping and resource use (Singh and Jana-
kiram, 1986; Delforce, 1994).2 High transaction
costs, imperfections in credit and labor mar-
kets, marked seasonalities in prices, preference
for home production of staples, etc. are likely
to cause interdependence between production
and consumption choices that make some
prices endogenous to the household. Therefore,
a nonseparable approach is adopted to simulate
smallholders' resource use and soil conserva-
tion decisions.
5. THE MODEL
An applied whole-farm linear programming
model which contains multiple production ac-
tivities and a number of behavioral constraints
was developed.3 We assume households to have
four major goals: maximization of net income,
self-suciency in major staples, generation of
cash sucient to meet various needs, and
achievement of acceptable levels of leisure. The
model identi®ed a production plan that maxi-
mized annual income de®ned as current net
returns (on-farm and o€-farm) less the present
value of future income loss caused by yield
losses resulting from soil erosion (user costs)
subject to various farm-level resource supply
and behavioral constraints.4 Major model ac-
tivities included crop production on two land
types (upland and lowland) with three levels of
fertilizer use and two land management options
(with and without conservation); crop sale and
consumption; seasonal family labor use for
production (on- and o€-farm) and leisure; sea-
sonal labor hiring; livestock production, sale
743
and consumption; and activities for accounting
the future productivity impacts of soil erosion.
Model constraints included limits on owned
and rented land, labor (including leisure), oxen
power, subsistence needs, animal feed require-
ments, capital/credit for fertilizer, cash income,
and restrictions on crop rotations. Due to sea-
sonality of the labor market, labor hiring was
allowed during planting, weeding and harvest-
ing seasons. Constraints on subsistence con-
sumption needs were de®ned in terms of
minimum nutrient requirements (carbohy-
drates, protein, and fat). In order to ensure that
the pattern of food consumption closely re¯ects
actual preferences, diversity constraints re¯ect-
ing observed patterns were imposed. Purchas-
ing options for major staples were excluded to
ensure satisfaction of the self-suciency goal.
Feed requirements for livestock were de®ned in
terms of dry matter, but shortfalls from own
production of crop residue feed were allowed to
be met through purchases. Limits on land
renting were set at a maximum of 1 ha (0.5 ha
each in the uplands and lowlands). This is al-
most twice higher than the average area rented
among the surveyed households. A total of 202
activities and 150 constraints were speci®ed.
Alternative methods for incorporating con-
sumption and leisure requirements into pro-
gramming models are described by Hazell and
Norton (1986). We preferred the approach that
captures the e€ect of income on consumption
and leisure choice by introducing an income
activity in which the negative of the marginal
propensities to consume food and leisure are
entered into the corresponding consumption
and leisure constraints. A system of Engel
equations was estimated for major categories of
consumption to obtain the coecients on the
income activity corresponding to consumption
constraints5. In estimating the Engel system,
full income was used to link production and
consumption decisions, while household char-
acteristics were used to capture part of the
nonincome e€ect on consumption.
Seasonal allocation of family labor into on-
farm, o€-farm and leisure activities was incor-
porated. Seven periods re¯ecting the cropping
calendar were de®ned and seasonal labor con-
straints showed family labor endowments in
each period. The total family labor days avail-
able exclude religious holidays that prohibit
®eld activity. Seasonal labor hiring options
were introduced to meet seasonal scarcities by
hiring additional labor. Availability of oxen
days for traction was also de®ned seasonally
744 WORLD DEVELOPMENT
similar to family labor re¯ecting religious
norms.
Levels of gross soil erosion for di€erent
crops on two types of land and two land
management options (see Appendix A) were
estimated using the modi®ed USLE adapted
for Ethiopian conditions (Hurni, 1985). Since
soil erosion on vertisols was considered to be
unimportant for the land user, the conserva-
tion option was de®ned only for upland soils.
Due to their relative suitability for low-to-me-
dium rainfall areas, the model used soil-stone
contour bunds as erosion-control methods.
Construction and maintenance of structures is
assumed to be carried out during the slack
seasons (January to May).
The e€ect of soil erosion on crop yield (pro-
ductivity) was estimated from a production
function estimated for the major crop (te€)
based on time series data collected by the Soil
Conservation Research Project (SCRP) in
other similar areas of the highlands. A number
of functional forms were estimated, but the
translog model provided the best ®t (adj.
R2 ˆ 0.64). A loss of 1 cm of soil depth (about
100 tons of soil) per ha was estimated to reduce
yields by 45 kg on red upland soils and 20 kg on
vertisols (see Appendix B). The topsoil value is
the marginal user cost of soil, the discounted
value of all future productivity losses resulting
from a unit of soil erosion. The total user cost
of soil erosion is thus the marginal user cost
times the level of soil erosion (Smith and
Shaykewich, 1990). The marginal user costs
were computed at 5%, 10%, 20% and 54% real
rates of discount (see Table 3). The user costs
increase with a decrease in the discount rate.
The marginal user costs are thus entered on the
soil erosion activities for the two land types in
the objective function.
All activity budgets and farm-level resource
supplies were speci®ed for a representative
household that re¯ects the average of the sur-
veyed households.6 The three levels (zero,
current, and recommended levels) of fertilizer
use were speci®ed for all cereals in order to
allow plausible adjustments in resource use in
response to changes in policy variables. They
may also serve for a piece-wise linear approx-
imation to a concave yield response function.
Crop responses to fertilizer were determined
from the survey data and fertilizer response
equations estimated for the study area (Ho,
1992).
Investment in conservation structures is ex-
pected to lower soil erosion rates. But, at least
in the short-term, crop yields, ceteris paribus,
might decrease, remain the same or increase
depending on the interactions with biophysical
conditions and the amount of productive land
occupied by structures (see Table 1). For ex-
ample, on a plot of 20% slope, the area of
productive land lost due to structures could
reach up to 20% and the proportion quickly
increases with slope. Apart from loss of pro-
ductive land, peasants also often complain that
soil and stone bunds (a) interfere with tradi-
tional practices of cross plowing, especially
when the distance between bunds is short,
making turning the plow dicult, and (b) har-
bor notorious pests (rats and weeds). Some
83%, 87%, and 25% of the respondents indi-
cated, respectively, loss of productive land,
working inconvenience, and pest problems as
deterrents for adoption of conservation struc-
tures. In a similar survey, 74% and 92% of
households surveyed in Gojjam and North
Shewa indicated net yields with traditional
practices (ditches and cut-o€ drains) to be
higher than that with introduced conservation
methods. In these areas with high rainfall, the
problem of water logging behind the structures
has also been reported. Thus, three alternative
scenarios for the short-term e€ects of installing
conservation structures on yields from the
peasants' perspectives were included: average
anticipated yields with conservation are (a) 20%
less than without conservation (I), (b) no dif-
ferent from without conservation (II), and (c)
20% more than without conservation (III).
In the analyses of the short-term responses,
the smallholder is assumed to be unable to
adjust its resource use patterns to relax the
constraints to invest in conservation. Hence,
only the initial labor requirements for installing
conservation structures (100 persondays haÿ1 )
and end of the year maintenance (20 person-
days haÿ1 ) were included. In modeling the long-
term response, the stationary equilibrium (Ha-
zell and Norton, 1986) was simulated using
annualized costs of conservation, which were
estimated as average costs of initial installation
and annual maintenance of structures over 15
years. In the capital constrained models, in
addition to owned capital of 100 Birr, the
household is assumed to have access to formal
credit ( 6 300 Birr) for fertilizer at 12% interest
and some informal credit ( 6 75 Birr) at 90%
interest. These capital/credit constraints are in
line with the credit market imperfections prev-
alent in 1994 and re¯ect average rates of fer-
tilizer use.
 SOIL EROSION THE HIGHLANDS OF ETHIOPIA 745

6. RESULTS (Holden, Shiferaw and Wik, 1998), sligtly more

(a) Short-term responses
The analytical results for the short-term re-
sponse of the farm household to the three levels
of productivity of conservation and internaliz-
ing the on-site user costs of soil erosion at dif-
fering discount rates are presented in Table 4.
In the basic models, no user costs of soil ero-
sion are internalized, and conservation struc-
tures enter the solution only when conservation
is yield-enhancing. In the latter case, conser-
vation serves the dual purpose of abating soil
erosion and enhancing current productivity
(``overlap technology'' in the terminology of
Reardon and Vosti, 1992). Its positive contri-
bution to current returns means that, whether
the peasant is concerned with future produc-
tivity loss due to soil erosion or not, cropping
on 86% of the erodible uplands will occur on
conserved land. Since conservation structures
are labor demanding, in case I and II, no con-
servation will be adopted unless the future
productivity impacts are suciently internal-
ized. Therefore, the average levels of soil ero-
sion for case I and II are almost twice that of
case III.
When the peasant internalizes future pro-
ductivity impacts of soil erosion at the esti-
mated average real discount rate of 54%
of uplands will be conserved in case III, but still
no conservation occurs on uplands in case I
and II. This suggests that, if the real private
discount rates are as high as we have estimated,
in the short-term, peasants are unlikely to
adopt conservation structures unless these in-
vestments provide short-term economic gains.
This may explain why peasants, though being
well aware of the ongoing process of degrada-
tion, have failed to install conservation struc-
tures in the area (Holden and Shiferaw, 1998).
But, if the peasants' real rate of discount is as
low as 10%, conservation structures will be
adopted on 45% and 100% of the upland
cropped area in cases II and III, respectively. If
the real rate reaches 5%, all the upland area will
also be conserved in case II. In case III, how-
ever, conservation becomes part of the small-
holder's land use plan only when the real rate
of discount is close to 5%. Hence, when con-
servation is unproductive, the level of conser-
vation that will be achieved even by a peasant
with a perfect foresight (and a low rate of dis-
count) is likely to be limited. At the 5% dis-
count rate, compared to the base case, current
net returns (less the user costs) decrease, re-
spectively, by 27%, 19%, and 13% for cases I,
II, and III.
As more weight is placed on the future pro-
ductivity impacts of soil erosion, more labor is

Table 4. E€ect of productivity of conservation and user costs of soil erosion on smallholders' land use and conservation
decisions

Issues considered Basic model User costs User costs User costs
(without user accounted accounted accounted
costs) (r ˆ 0.54) (r ˆ 0.1) (r ˆ 0.05)
a
I&II III I&II III I II III I II III

Net income (Birr) 5580 5854 5387 5756 4778 4880 5461 4077 4533 5111
Te€ (kert) b 5.91 5.66 5.84 5.64 5.67 5.74 5.57 5.03 5.59 5.48
Wheat 1.21 1.40 1.26 1.45 1.42 1.36 1.52 2.00 1.49 1.59
Barley 0.40 0.33 0.40 0.36 0.36 0.37 0.33 0.20 0.33 0.32
Field peas 0.07 0.13 0.23 0.14 0.15 0.29 0.16 0.33 0.32 0.19
Faba beans 0.54 0.57 0.28 0.55 0.51 0.27 0.44 0.55 0.26 0.43
Chick peas 1.14 0.73 1.17 0.56 0.69 0.78 0.50 0.71 0.80 0.47
Rough peas 0.37 0.37 0.37 0.35 0.36 0.36 0.33 0.37 0.35 0.33
Te€ area upland 2.42 2.48 2.38 2.47 1.72 1.88 1.70 1.07 1.75 1.64
% upland conserved 0 86 0 87 0 45 100 39 100 100
Soil loss (t/ha) 38.1 21.0 37.9 21.0 36.0 26.3 18.1 26.9 17.9 18.1
a
The scenarios analyzed are:
I ± Average anticipated yields with conservation are 20% less than conventional farming, II ± Average anticipated
yields with conservation are equal to conventional farming, and III ± Average anticipated yields with conservation
are 20% more than conventional farming. For estimated user cost see Table 3.
b
Sum of cultivated area of white, mixed and red varieties of te€.
746 WORLD DEVELOPMENT

used in conservation and household income
falls. Consumption of te€, wheat, other crops
and leisure (not shown) also decreases. More-
over, the production of the most erosive crop
(te€) decreases and that of the less erosive ce-
real (wheat) increases as more of the user cost is
internalized. Likewise, te€ production on
erodible uplands declines while that on less
erodible lowlands increases. Coupled with the
shift away from te€, at low discount rates
(higher user costs), the marketed surplus of te€
decreases substantially (especially in case I)
while that of wheat increases accordingly.
When the internalized user costs are small (high
discount rates), marketed surplus of te€ tends
to increase slightly to compensate for the de-
crease in income, but a further increase in the
level of user costs leads to a consistent decline
in the marketed output of this crop.
(b) Long-term responses
The analytical results for the steady state
equilibrium in the smallholder's resource use
and conservation decisions are presented in
Table 5. This assumes a lifetime of about 15
years for soil bunds and annual replacement of
6.7% of the area under conservation. This is not
unrealistic considering the poor condition of
soil-stone bunds introduced in the last 10±15
years in other parts of the highlands. Periodic
removal of structures may also be in the best
interest of highland smallholders as many have
been observed moving the position of struc-
tures from time to time so as to exploit the
accumulated fertile soil near the bunds. In the
event that the structures last longer than 15
years, the steady-state level of conservation
estimated here will be on the lower side. Al-
though the steady-state equilibrium does not
give guidance on the time path of implementing
the resulting optimal plan, it lends itself to ex-
amining the long-term e€ects on resource use
and conservation behavior of smallholders.
When average anticipated yields with con-
servation are lower than conventional farming,
under plausible assumptions about the discount
rate, no conservation enters the optimal solu-
tion. Only when private discount rates are 10%
or lower would conservation be in the interest
of the land user. With a private discount rate of
5%, the resulting long run adoption of conser-
vation structures on 78% of the erodible up-
lands compares with 39% in the short-term.
Thus, in the long-term, average soil losses could
be reduced from 27 t haÿ1 to 21 t haÿ1 . When
anticipated yields with conservation are the
same as conventional farming in the long-term,

Table 5. Land use and conservation decisions at the stationary equilibrium of the household

Yield e€ect of Level of user Net Income Te€ area Wheat area % Upland Soil loss
conservation cost a (Birr) (kert) (kert) conserved (t/ha)

I A 5580 5.91 1.21 0 38.1

B 5387 5.84 1.27 0 37.9
C 5127 5.77 1.33 0 36.4
D 4779 5.67 1.42 12.6 34.2
E 4188 5.86 1.25 78 21.4
II A 5580 5.91 1.21 0 38.1
B 5425 5.86 1.25 72.7 22.6
C 5316 5.81 1.28 100 18.1
D 5167 5.78 1.32 100 18.0
E 4841 5.69 1.41 100 18.0
III A 6213 5.74 1.35 100 18.2
B 6135 5.73 1.37 100 18.2
C 6021 5.70 1.39 100 18.5
D 5862 5.67 1.43 100 18.8
E 5462 5.57 1.52 100 18.6
a
The scenarios analyzed are: A ± No user costs accounted; B ± User costs accounted (r ˆ 0.54); C ± User costs ac-
counted (r ˆ 0.2); D ± User costs accounted (r ˆ 0.1); E ± User costs accounted (r ˆ 0.05). Cases I, II, III are I ±
Average anticipated yields with conservation are 20% less than conventional farming, II ± Average anticipated yields
with conservation are equal to conventional farming, and III ± Average anticipated yields with conservation are 20%
more than conventional farming.
 SOIL EROSION THE HIGHLANDS OF ETHIOPIA
internalization of user costs at rates as high as
54% induce some level of conservation. If the
land user is unaware, unable or unwilling to
account for user costs, the steady state equi-
librium will not include any conservation of the
erodible lands. One may also note that while no
conservation occurs in the short term at the
estimated average discount rate of 54%, in the
steady state, structures will be adopted on 73%
of the cultivated erodible uplands. This points
to the need for some policy incentives (big
push) in the short-term to persuade the small-
holder to install conservation practices. This is
necessary to motivate and guide the peasant
toward sustainable land management and in-
creased conservation in the long term. Short of
such persuading mechanisms to install conser-
vation in the near-term, the steady-state level of
conservation may remain unattained.
When conservation is perceived to provide
higher returns to land and labor, complete
conservation may occur in the long term even
when no user costs are accounted for or ac-
counted at the estimated average discount rate
of 54%. This compares with 86% and 87%
conserved, respectively, in the short run. This
implies that when structures serve as a multi-
purpose technology, peasants (including those
who may not be interested in future produc-
tivity impacts of erosion) may fully adopt
conservation. In this case, no additional in-
centives are required to internalize the inter-
temporal externality other than enforcing
secure rights to land. Insecure rights to land
could shorten the planning horizon (and hence
shorten the life time of conservation structures)
or the fear of expropriation may raise the dis-
count rates, and prevent land users from
adopting a long-term perspective in their land-
use decisions. In Ethiopia, land is property of
the state and the smallholder retains only use
rights. Despite the illegality of land markets,
insecurity of land rights may not be a crucial
deterrent to installation of conservation struc-
tures (Shiferaw and Holden, 1998; Holden,
Shiferaw and Wik, 1998), perhaps due to other
more binding constraints such as poverty, im-
perfect rural markets, and lack of appropriate
policies.7 Moreover, as in short-term responses,
the steady state also indicates substitution of
wheat for te€ as more weight is given to long-
term land productivity loss. A drop in the pri-
vate discount rate (and hence a rise in the level
of internalized user costs) and a drop in income
also reduce leisure demand and increase family
labor supply.
747
(c) E€ects of credit constraints
The results discussed so far were capital un-
constrained for purchasing fertilizer. The ex-
penditure on the income-maximizing level of
fertilizer use was thus higher than the average
observed expenditure on this input. The level of
average income achieved was also higher since
the model chooses the recommended level of
fertilizer which is higher than the current level
of use. An unconstrained use of fertilizer may
reduce the negative impact of nutrient mining
due to soil erosion. It may also obscure the
impact of future productivity loss thereby de-
luding the land user to overlook user costs and
the need to mitigate soil erosion (Shiferaw,
1996). In order to investigate this e€ect on the
short-term responses of the farm household,
cash/credit constraints re¯ecting the current
level of expenditure on fertilizer were imposed.
Table 6 presents the results of the cash/credit-
constrained model.
In case I, the capital credit constraint does
not force conservation into the optimal solu-
tion in all subcases except E. With a capital
constraint and a 5% private rate of discount,
52% of the uplands will be treated with con-
servation which compares with only 39% in the
capital-unconstrained model. The capital con-
straint for fertilizer reduces the ability to sub-
stitute lost nutrients through addition of
fertilizer nutrients. The drop in household in-
come due to constrained use of fertilizer and
the resulting reduction in leisure consumption
also release some family labor for conservation
as the level of internalized user costs increase.
The total area of the most erosive crop (te€)
and its share on the uplands decrease as more
weight is given to user costs. Likewise, area of
the less erosive crop (wheat) increases, and a
progressive shift in cereal production to less
erodible soils occurs.
In case II, at the average estimated rate of
discount, conservation structures would be in-
stalled on 16% of the cultivated uplands. This
compares with no conservation in the capital-
unconstrained model. Constrained use of fer-
tilizer limits the ability to substitute lost nutri-
ents. It also lowers the returns to labor and
reduces leisure demand which will help release
some labor for use in conservation. A decrease
in the discount rate raises the user costs thereby
inducing the household to mitigate soil erosion.
As the private discount rates decrease (user
costs increase), the rise in opportunity cost of
labor and the limited possibilities for adjust-
748 WORLD DEVELOPMENT

Table 6. The e€ect of credit constraints for fertilizer on short-term resource use and conservation decisions of small-
holders

Yield e€ect of Level of Net in- Te€ area Wheat Upland cere- Lowland cere- % upland Soil loss
conservation user cost a come (kert) area (kert) als (kert) als (kert) conserved (t/ha)
(Birr)

I A 5034 6.32 0.82 4.00 3.48 0 39

B 4822 6.11 0.99 3.80 3.55 0 38.4
C 4543 5.03 1.98 3.57 3.68 0 35.1
D 4193 4.87 2.10 3.31 3.88 0 34.5
E 3547 4.77 2.24 3.21 3.96 52 24.5
II A 5034 6.32 0.82 4.00 3.48 0 39
B 4714 6.10 0.99 3.94 3.55 16 33.5
C 4572 5.97 1.20 3.78 3.61 21 32
D 4316 5.48 1.52 3.47 3.97 41 26.7
E 3963 4.86 2.10 3.37 3.81 100 17
III A 5241 5.37 1.67 4.43 2.67 48 29
B 5112 5.77 0.67 4.20 2.70 85 22.4
C 4967 5.81 0.66 4.19 2.70 100 19.6
D 4800 5.81 0.64 4.18 2.70 100 20
E 4442 4.74 2.10 3.76 3.37 100 18
a
The scenarios analyzed are: A ± No user costs accounted; B ± User costs accounted (r ˆ 0.54); C ± User costs ac-
counted (r ˆ 0.20); D ± User costs accounted (r ˆ 0.10); E ± User cots accounted (r ˆ 0.05). Cases I, II, III are I ±
Average anticipated yields with conservation are 20% less than conventional farming, II ± Average anticipated yields
with conservation are equal to conventional farming, and III ± Average anticipated yields with conservation are 20%
more than conventional farming.

ment of cropping patterns under the capital
constraint reduce the rate of conservation until
it approaches what was achieved in the un-
constrained case. The initial positive e€ect of
capital constraints to encourage conservation
thus disappears with a rise in internalized user
costs.
In case III, when the land user ignores the
intertemporal externality, the credit constraint
for fertilizer depresses adoption of this tech-
nology. The share of conserved uplands falls
from 87% in the unconstrained case to 48% in
the constrained model. This suggests that de-
spite the positive productivity and soil-con-
serving e€ects of the technology, its adoption
would be constrained by shortage of credit for
a complementary input (fertilizer). When user
costs are ignored and the shadow value of fer-
tilizer is high, the household cuts on its labor
use in conservation and channels it into ex-
pansion of the farm until the land-hiring con-
straint is binding. This e€ect, however,
diminishes as the land user begins to account
for the user costs of soil erosion. Thus, in III-B,
the level of adoption of conservation structures
on erodible lands is almost the same as that in
the unconstrained model. A further increase in
the level of accounted user costs leads to com-
plete adoption of conservation practices on
uplands. Unlike case I and II, a rise in user
costs initially increases the te€ area mainly be-
cause growing the crop, which can be used to
®nance fertilizer, on lands treated with conser-
vation (>85%) is now made possible. A further
increase in user costs, however, displaces te€ in
favor of a less erosive wheat.
(d) E€ects of fertilizer prices
The simulation results of the short-term e€ect
of relative increases in the 1993±94 fertilizer
prices (e.g., after devaluation and removal of
input subsidies) under the credit constraint for
this input is given in Table 7. In cases I and II,
a rise in fertilizer prices in the face of a capital
constraint will not induce any conservation, but
gradually shifts cereal production away from
erodible uplands as fertilizer use declines. This
is because the increase in input prices has fur-
ther diminished possibilities for substituting
fertilizer nutrients for eroded soil. Income de-
creases with a rise in fertilizer prices. Thus,
when investment in physical structures becomes
a dicult alternative, the rise in input prices is
initially compensated by expansion in the area
of less erosive cereals (mainly wheat), but the
area under pulses (legumes grown without fer-
tilizer) begin to displace wheat as the input
 SOIL EROSION THE HIGHLANDS OF ETHIOPIA 749

Table 7. The e€ect of fertilizer prices under credit constraints on short-term resource use and conservation decisions of
smallholders

Yield e€ect of Level of Net in- Te€ area Wheat Upland cere- Lowland cere- % upland Soil loss
conservation user cost a come (kert) area (kert) als (kert) als (kert) conserved (t/ha)
(Birr)

I B 4822 6.11 0.99 3.80 3.55 0 38.4

F 4069 3.18 2.63 3.88 2.28 0 33.7
G 3653 2.72 1.69 3.31 1.41 0 33.6
H 3224 3.07 1.43 3.20 1.41 0 34.5
II B 4714 6.10 0.99 3.94 3.55 16 33.5
b
F±H
III B 5112 5.77 0.67 4.20 2.70 85 22.4
F 4417 5.18 0.59 3.47 2.54 85 19.8
G 4026 5.14 0.65 3.47 2.54 93 18.5
H 3549 4.67 1.21 3.61 2.54 74 21.3
a
The scenarios analyzed are: B ± User costs accounted (r ˆ 0.54); F ± Same as B but fertilizer prices increase by 50%;
G ± Same as B but fertilizer prices doubled; H ± Same as B but fertilizer prices tripled.
b
F±H in II are similar to F±H in I.
Cases I, II, III are I ± Average anticipated yields with conservation are 20% less than conventional farming, II ±
Average anticipated yields with conservation are equal to conventional farming, and III ± Average anticipated yields
with conservation are 20% more than conventional farming.

price rises above 100%. As returns to family
labor on-farm fall and threaten livelihood, the
household also cuts its leisure time and in-
creases both on- and o€-farm labor supply until
the seasonal labor constraints are binding. A
rise in fertilizer prices above 50% forces the
household to divert conservation labor onto
expanding farm size through hiring in addi-
tional land (and hence on-farm labor supply)
and generation of income o€-farm until the
land hiring and labor constraints are binding.
Thus, conservation disappears in case II when
fertilizer prices increase by 50% or more.
In case III, when conservation improves
short-term returns, a rise in fertilizer prices and
the resulting decrease in leisure demand and
opportunity cost of labor in farming, improve
the share of upland under conservation from
85% before the price change to 93% with dou-
bling of these prices. Further increase in input
prices under the capital constraint decreases
income and reduces the ability to replenish soil
fertility using fertilizer or conserving it through
investment in erosion-control measures. Thus,
as the shadow value of subsistence rises and the
cash income constraint begins to be strongly
binding, the household gradually withdraws
from conservation and channels its labor into
an o€setting area expansion to raise income.
This is unlike the situation in the capital-un-
constrained model in which adoption of con-
servation consistently increases (in all cases I,
II, and III) at least up to 400% rise in the price
of fertilizer. The positive e€ect on conservation
of a rise in the price of a productive input in the
unconstrained case is also consistent with the-
oretical ®ndings (Shiferaw, 1996).
7. SUMMARY AND SOME POLICY
IMPLICATIONS
One of the multiple challenges that poor
countries with fast-growing populations are
facing today is the deterioration of the resource
base and reduction of the food production
potential of agricultural land. Past e€orts to
abate the soil degradation externality in Ethi-
opia through conservation programs have often
fallen short of expectations. Smallholders'
production and land conservation decisions are
likely to be in¯uenced by factors related to their
dual nature as units of consumption and pro-
duction. Soil erosion reduces the future pro-
ductivity of agricultural land and socially
optimal conservation may not occur when on-
site costs of production are not suciently in-
ternalized. High private discount rates and
short planning horizons contribute to this ef-
fect. Poverty, credit constraints, and insecurity
of land tenure may raise rates of time prefer-
ence and shorten planning horizons, which will
limit voluntary internalization of the on-site
land degradation externality. Even if small-
750 WORLD DEVELOPMENT
holders are aware of user costs and are willing
to internalize them, the level of returns ex-
pected from switching to conservation will in-
¯uence the level of conservation achieved.
Rural market imperfections and the subsis-
tence constraints imply that peasants' produc-
tion and investment decisions are not dictated
by pro®t considerations alone; consumption
choices matter. This study used a nonseparable
household-farm model to simulate smallhold-
ers' resource use and conservation decisions in
Ethiopia. Results generally indicate that when
peasants ignore user costs of soil erosion, in-
vestments in erosion-control practices are lim-
ited. Limited awareness of the erosion problem
and poverty, which raises time preferences or
limits investment resources, contribute to low
levels of internalization of costs of future pro-
ductivity losses. This e€ect may be lower when
conservation contributes to poverty alleviation
by raising the welfare of the poor.
When peasants anticipate lower or the same
returns from switching into a soil-conserving
regime, lower yields and/or substantial instal-
lation costs prohibit smallholders from invest-
ing in more sustainable conservation methods.
Under the labor and other costs assumed for
installing soil-stone bunds, peasants' ability in
the short term to invest in conservation will be
limited unless conservation helps to boost
yields. Only if private discount rates are as low
as 5±10%, would some conservation become
part of the optimal farm plan. This may explain
the general lack of conservation in the study
area. It also suggests that policies to enhance
soil conservation should look for cost-e€ective
methods which serve the dual purpose: erosion
control and higher yields. Where this is lacking,
society may have to look for other incentives
(carrots and sticks) to persuade the land users
to install conservation practices.
NOTES
1. After the 1975 land reform, land has often been
distributed according to family size. Hence, households
were strati®ed into four groups based on the number of
owned oxen, a vital resource for cropping also consid-
ered a wealth indicator in the area.
2. Our ®rst experiment with a separable model in
which the full range of objectives and constraints have
not been speci®ed also resulted in an optimal plan
which mainly includes white te€, the most remunera-
Under plausible assumptions, even in the
long run, conservation will not be part of the
smallholders' optimal production plan when it
reduces the productivity of the land. Only when
the user costs are internalized at low private
rates of discount (rates less than 10%) would
conservation enter the optimal plan. Such low
discount rates seem to be justi®able however
only from the viewpoint of society rather than
that of the private land user (Holden, Shiferaw
and Wik, 1998). Although widespread adoption
of conservation appears to take place in the
long run when user costs are accounted at high
rates of discount, this may not be achievable
unless some incentives are used in the short run
to induce the land user to embark on conser-
vation. Apart from secured rights to land, ed-
ucational and outreach programs may also be
desirable to increase the smallholders' aware-
ness of the user costs and encourage commu-
nity e€ort and collective action to counter the
soil erosion problem.
The e€ect of a fertilizer cash/credit con-
straint on production and conservation deci-
sions also depends on the productivity of
conservation practices. When conservation is
either yield-depressing or neutral, relaxing the
fertilizer credit constraint allows substitution
of fertilizer for lost nutrients and hence tends
to discourage conservation. This perhaps
points to the need for crosscompliance-type
policies that link input and credit subsidies
with conservation requirements. When returns
to conservation are low, increase in fertilizer
prices under the capital constraint will dis-
courage conservation. Thus, without provision
of sucient credit to smallholders, the recent
soaring of fertilizer prices in Ethiopia follow-
ing structural adjustment programs and the
removal of input subsidies are likely to dis-
courage conservation.
tive crop. Thus, the separable approach is likely to
misrepresent peasants' production decisions in our
study area.
3. Despite its known limitations, the LP framework,
owing to its relative ease for handling multiple produc-
tion decisions in highly constrained systems, has been
often used for farm household modeling (e.g., see Ahn,
Singh and Squire, 1981; Singh and Janakiram, 1986;
Bezuneh, Deaton and Norton, 1988; Delforce, 1994).
 SOIL EROSION THE HIGHLANDS OF ETHIOPIA
4. In maximizing net income (less the user costs of soil
erosion), the other goals were built as constraints in the
model. The full mathematical set up of the model is
available from authors on request.
5. The estimated consumption system is available from
authors on request.
6. Since there was slight variation in the percentage of
households from the three PAs in the four categories
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752 WORLD DEVELOPMENT

APPENDIX A ‡1:03 ln …SLOPE† ln…RFALL†

…0:18†

Soil Loss for two types of land in Ada district

estimated with the Universal Soil Loss Equa- ‡ 0:54 ln …SLOPE† ln…PLOW†
…0:22†
tion (USLE) Adapted to Ethiopia (Hurni,
1985). See Table 8 given below.
ÿ 3:34 ln …TIME† ln…RFALL†
0:005
APPENDIX B
ÿ 17:78 ln …RFALL† ln…FPLOW†
…0:0001†
The Translog production function:
lnY ˆ ÿ 1203:12 ‡ 20:2 ln …TIME† N ˆ 184 harvest samples; Adj: R2 ˆ 0:64:
…0:0001† …0:01†

‡ 134:3 ln …FPLOW† ‡ 6:69 ln …SODP†

…0:0001† …0:04† Where Y is te€ yield in ton haÿ1 . TIME is the
ÿ 10:5 ln …SLOPE† index of time (1±10). FPLOW is the frequency
…0:07† of plowing to planting. SODP is the soil depth
‡ 290:5 ln …RFALL† in cm. SLOPE is slope gradient in per cent.
…0:0001†
RFALL is annual rainfall in mm.
‡0:69 f ln …TIME†g2 ÿ 0:58 f ln …PLOW†g2 The marginal user cost of a cm of soil depth
…0:0001† …0:25† was estimated assuming an average soil depth
‡ 0:134 f ln …SODP†g 2 of 50 and 100 cm, and slope of 20% and 5% for
…0:1† upland and lowland soils, respectively. The
average te€ yield of 1.2 tons haÿ1 , plowing
‡ 0:18 f ln …SLOPE†g2 ÿ 17:22 f ln …RFALL†g2 frequency of 6, and rainfall of 800 mm yearÿ1
…0:08† …0:0001†
are also used. All the interaction terms with soil
0:33 ln …TIME† ln…SODP† depth were used although they were not highly
…0:07† signi®cant due some multicollinearity problem.
‡ 0:22 ln …SLOPE† ln …SODP† The values in parenthesis under the parameter
…0:1† estimates are the p-values. At the current levels
ÿ 1:03 ln …RFALL† ln…SODP† of soil erosion, the estimated loss of 45 kg and
…0:15† 20 kg cmÿ1 of soil depth amount to 2.8% and
ÿ 0:39 ln …PLOW† ln…SODP† 0.3% productivity decline yearÿ1 on upland and
…0:13† lowland soils.

Table 8.

I. Without Conservation II. With Conservation (Level Bund and

Level Fanja Juu)

Factor Te€ Other Cereals Pulses Te€ Other Cereals Pulses

Up- Low- Up- Low- Up- Low- Up- Low- Up- Low- Up- Low-
land land land land land land land land land land land land

R 430.2 430.2 430.2 430.2 430.2 430.2 430.2 430.2 430.2 430.2 430.2 430.2
K 0.25 0.15 0.25 0.15 0.25 0.15 0.25 0.15 0.25 0.15 0.25 0.15
L 2.10 3.50 2.10 3.50 2.10 3.50 0.60 1.20 0.60 1.20 0.60 1.20
S 1.78 0.40 1.78 0.40 1.78 0.40 1.78 0.40 1.78 0.40 1.78 0.40
C 0.25 0.25 0.18 0.18 0.15 0.15 0.25 0.25 0.18 0.18 0.15 0.15
P 0.75 0.75 0.75 0.75 0.75 0.75 0.90 0.90 0.90 0.90 0.90 0.90

Soil loss 75.56 16.94 52.89 11.86 45.33 10.16 25.90 6.97 18.13 4.88 15.54 4.18

A ± Soil loss (tons/ha/year); R ± Rainfall Erosivity Factor; K ± Soil Erodibility Factor; L ± Slope Length; S ± Slope
Gradient; C ± Land Cover Factor; P ± Land Management Factor.