The coffee sub-sector is very important to the Ethiopian economy – in 2005, coffee export generated 41% of foreign exchange earnings – and provides income for approximately 8 million smallholder households. Policy attention to the sector was always considerable, and its importance has been renewed in the latest Poverty Reduction Strategy, the Plan for Accelerated and Sustained Development to End Poverty (PASDEP). PASDEP puts forward a development strategy based on accelerated economic growth, part of which is hoped to be achieved via increased smallholder commercialisation and market integration.

This paper addresses commercialisation in selected coffee growing areas in Ethiopia. The objectives of the study were (i) to assess the scale of commercialisation in coffee growing areas and to detect household and farm characteristics which might explain variation in the levels of coffee commercialisation among households; and (ii) to answer two separate questions: why some sampled households didn’t take part in output markets (i.e. identify determinants of market entry) and why some households sold more products than others (i.e. determinants of market supply). Answering these questions will help to identify policy options promoting market participation and commercialisation of smallholder agriculture.