Abstract

Against the background of various innovative business approaches developed in the last two decades that aim at directly targeting poor people as producers or consumers, this research looks at the potential of the private sector to contribute to poverty reduction in rural Ethiopia by providing improved seed to poor smallholder farmers. Smallholder productivity is very low and demand for improved seed is higher than supply in Ethiopia. An institutional economics framework is applied to analyze more than 40 expert interviews carried out in Ethiopia with stakeholders of business, government and NGOs. Results suggest that national institutions vitiate incentives for seed producers and cause transaction costs to be very high for Ethiopian seed companies. This hampers private sector development, which causes a lack of improved seed in the country. Institutional reforms are undertaken but are ambiguous in their effect on private sector development.