large farms’ better endowments in terms of soil quality or infrastructure access, it also points towards _prima facie_ potential for spillovers, either through adoption of technology or input use.<sup>10</sup> This is reinforced by the fact that the relationship between yields and farm size is not linear; yields are highest (42, 31, and 42 Q/ha for maize, sorghum, and wheat) for farms in the 10-20 ha range whereas those larger than 20 ha often obtain some 20% less than the top performing group in each crop.

Improved seed and fertilizer have long been identified as key to smallholder productivity in Ethiopia (Krishnan and Patnam 2014). Our data suggest significant variation in their use with differences being most pronounced for improved seed which, for maize, sorghum, wheat and teff, is used by 80%, 42%, 74% and 41% of the largest farms, 52%, 18%, 66% and 85% of those in the 10-20 ha range, but only 25%, 0.4% 7% and 4.9% of smallholders, respectively. Although, with 83%, 45%, and 74% of farms in the largest group who use fertilizer on maize, sorghum, and wheat, compared to 53%, 19%, and 66% in the 10-20 ha category and 39%, 15%, and 73% for smallholders, respectively, the incidence of fertilizer use is higher on larger commercial farms, variation is much less than for improved seed which may be a more binding constraint.

Annual data on small farms for 2004-2014 allow us to describe changes in smallholders’ area, yields, input use, distance to large farms, and exposure to climatic shocks (table 3 panel A). Cultivated area per farmer increased, from 0.89 ha in 2004 to 0.96 ha in 2014 and the fact that more farmers grew maize (46% to 59%), teff (33% to 41%), and wheat (22% to 29%) points towards diversification.<sup>11</sup> The share of those applying chemical fertilizer and improved seed overall rose from 20% to 54% and from 8% to 20%, respectively. There was a clear decrease in the distance to the next commercial farm, from 78 km to 41 km in 2004 and 2014 and an increase of the number of large farms within a 0-25, 25-50, and 50-100 km radius from 0.37 to 2.24, 0.97 to 6.79, and 3.13 to 29.64, respectively as well as their area (from 1.3 to 8.0; 3.6 to 25.6; and 18.4 to 110.0 km<sup>2</sup> ). This is graphically illustrated in figure 2 which shows that, with commercial farm expansion, smallholders’ distance to the next commercial farm decreased. Finally, using the incidence of positive or negative rainfall shocks (i.e. deviations of more than one standard deviation from the long-term average in either direction) as an indicator of climatic variability suggests that many kebeles were affected by droughts in 2004-2005 and 2011and by flooding in 2006, 2010, and 2013.

In our commodities of interest, increases in yield and input used allowed smallholders to close the gap to commercial farms but the rate of catch-up varies by crop. In maize, area per farm increased from 0.16 to 0.19 ha, yield doubled from 13 to 27 Q/ha and the share of farmers who used fertilizer or improved seeds doubled from 28% to 53% and tripled from 7% to 20%, though both remain well below the almost 70% of commercial farms using both. Smallholders’ wheat area increased from 0.13 ha to 0.21 ha and yields from

> 10 To translate this into information on productivity, adjustment for inputs as well as access to infrastructure etc. will need to be made.

> 11 As we have information on type of output only at kebele level, a crop is said to be grown if at least 20% of kebele area is devoted to it.

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