Market Incentives, Farmers’ Response and A Policy Dilemma: A Case Study on Expansion of Chat Production as a Cash Crop in the Eastern Ethiopian Highlands.\

This paper discusses the reasons for and effects of the dramatic expansion of chat production as a cash crop in the Hararghe Highlands of Ethiopia. Despite the Ministry of Agriculture’s deliberate attempt to marginalize and openly discourage chat production, farmers continue shifting their scarce resources to chat production. Using data generated by a rural livelihood survey from 197 randomly selected households, economic and non-economic factors contributing to the expansion of chat production are identified and its food and nutritional security impact was analyzed. The case study confirms once more again the power of market incentives in encouraging agricultural activity of peasant farmers even in the absence of functional research and extension systems. The study shows that households producing chat have good food security and thus the situation presents a policy dilemma: should the government promote or discourage chat production