Crop biodiversity, productivity and production risk: Panel data micro-evidence from Ethiopia Prosper F. Bangwayo-Skeete, Mintewab Bezabih and Precious Zikhali Abstract This paper uses data from the Central Highlands of Ethiopia to assess the productivity and production risk impacts of crop diversification. Using count index as a measure of crop biodiversity, results show that increasing crop biodiversity contributes positively to farm level productivity. In addition, the findings suggest that the level of production risk significantly responds to the level of diversity, with the effect highly conditional on the skewness. The major contribution of the paper is that, unlike previous similar studies that tended to focus on intra-crop diversity, it incorporates the mutual interdependencies across crops within a farm by focusing on inter-crop diversity. Hence the study adds to the growing empirical literature, particularly in Africa, that tests empirical relationships between productivity, risk and crop diversity.An important policy implication for a diversity rich country such as Ethiopia is that agro-biodiversity can be used to improve agricultural productivity while promoting in situ conservation. Keywords: Crop biodiversity, productivity, risk, Sub-Saharan Africa, Ethiopia. 1. Introduction The importance of adopting suitable risk management strategies in crop production decisions cannot be overstated, especially in regard to Sub-Saharan African countries that are agriculture-based such as Ethiopia. In Sub-Saharan Africa (SSA) in general and in Ethiopia in particular, farmers often operate under uncertain production environments marred by desertification, water shortages and global warming (Rudi et al., 2012). Such environments have been shown to limit the use of modern agricultural technologies such as fertilizer (see, e.g., Moser and Barrett, 2003; Christiaensen and Demery, 2007; Alem et al., 2010) particularly in the face of limited off-farm opportunities (Reardon et al., 1998; Carletto et al., 2007) and huge financial and insurance constraints (Dercon, 2002). Low adoption of modern technologies contributes to recurrent low agricultural productivity, which is a significant contributor to poverty, particularly in agriculture-based countries (Christiaensen and Demery, 2007). Under such settings, crop choice becomes a central risk management mechanism (Fafchamps, 1992; Dercon, 2002) in rural areas where agro-climatic conditions are poor 1 and off- or non-farm income-generating activities are usually limited, making income diversification a daunting task. In particular, in rain-fed regions where irrigation is not available, farmers and breeders use crop biodiversity (crop genetic diversity) to adapt crops to diverse and evolving environmental conditions. Conserving diversity in the field delivers important productive services and allows farmers to mitigate some of the negative effects of harsh weather and agro-ecological conditions (Walker et al., 1999; Di Falco and Chavas, 2009). In this regard, international agreements such as the United Nations (UN) sponsored Convention on Biological Diversity and the United Nations Food and Agriculture Organization (FAO) sponsored International Treaty on Plant Genetic Resources for Food and Agriculture encourage the design of policies that convey economic incentives for farmers to conserve agro- biodiversity (Convention on Biological Diversity, 2002). Existing experimental studies show that plant biomass is an increasing function of diversity (Tilman and Downing, Prosper F. Bangwayo-Skeete is at the International College of Cayman Islands, Cayman Islands. E-mail: prosper.bangwayo-skeete@ myicci.com Mintewab Bezabih is at the University of Portsmouth, Department of Economics, Portsmouth, United Kingdom. E-mail: Mintewab. Bezabih@port.ac.uk Precious Zikhali is with the International Water Management Institute, Southern Africa Regional Office, Pretoria, South Africa. E-mail: P.Zikhali@cgiar.org 1 Ethiopia, like most of Sub-Saharan Africa (Rudi et al., 2012), is vulnerable to climate change impacts largely due to the country’s propensity to drought and desertification, and its dependence on mostly rain-fed, subsistence agriculture that makes the country highly vulnerable to erratic and often poor rainfall. Natural Resources Forum 36 (2012) 263–273 © 2012 The Authors. Natural Resources Forum © 2012 United Nations