Rural Land,Emerging Rental Land Markets and Public Policy in Ethiopia

Abstract: While farmers today access land mainly through administrative‐based land distribution, transactions in rental markets are on the rise. Different rental contracts are informally arranged with varied land use and transfer rights and degree of enforcement. These contracts are often interlocked to overcome the problem of incomplete or missing non‐land factor markets. The empirical evidence is thin but shows mixed records on performance of rental markets. Transactions in rental markets provide an additional venue to access land, reduce disparity in distribution of area of land operated, correct imbalances in factor proportions at farm level, and partly substitute for missing or incomplete factor markets. However, rights to rental land are restricted and poorly enforced, and markets are localized and thinly traded. While participation in rental markets is potentially welfare improving, increasing scarcity of land and demands for higher rent, a fee for right to rent land, payment in cash, farming skills and experience, and proof of no‐default are tightening conditions to access to land, particularly to the young poor farmers. Public policy has an important role in formalizing and enhancing the development of rental markets through strengthening enforceable long‐term security of tenure, providing legal cover to rental contracts, allowing tradability of long‐term use rights through rental markets, and providing the institutional mechanism to enforce contracts and reduce the burden of self‐enforcement. These policy measures need to be nested within a broad framework of market development, and informed by policy research and experimentation.