Starting in l976, the government encouraged farmers to form cooperatives. Between l978 and l98l, the PMAC issued a series of proclamations and directives outlining procedures for the formation of service cooperatives and producers' cooperatives. Service cooperatives provided basic services, such as the sale of farm inputs and consumer items that were often rationed, the provision of loans, the education of peasant association members in socialist philosophy, and the promotion of cottage industries.

The producers' cooperatives alleviated shortages of inputs (because farmers could pool resources) and problems associated with the fragmentation of landholdings. The government ordered the creation of these cooperatives because of its belief that small farmers were inefficient and were unable to take advantage of economies of scale.

The producers' cooperatives developed in three stages. The first stage was the melba, an elementary type of cooperative that required members to pool land (with the exception of plots of up to 2,000 square meters, which could be set aside for private use) and to share oxen and farm implements. The second stage, welba, required members to transfer their resources to the cooperative and reduce private plots to l,000 square meters. The third stage, the weland, abolished private land use and established advanced forms of cooperatives, whose goal was to use mechanized farming with members organized into production brigades. Under this system, income would be distributed based on labor contributions.

The government provided a number of inducements to producers' cooperatives, including priority for credits, fertilizers, improved seed, and access to consumer items and building materials. According to the ten-year plan, more than half of the country's cultivated land would be organized into producers' cooperatives by l994.

Despite the incentives, farmers responded less than enthusiastically. Farmers saw the move to form cooperatives as a prelude to the destruction of their "family farms." By l985/86 there were only 2,323 producers' cooperatives, of which only 255 were registered. Some critics argued that the resistance of farmers caused the government to formulate its resettlement and villagization programs.

A major component of the government's agricultural policy since the l974 revolution has been the development of largescale state farms. After the l975 land reform, the Derg converted a majority of the estimated 75,000 hectares of large, commercial farms owned by individuals and cooperatives into state farms. Since then, the government has expanded the size of state farms. In l987/88 there were about 2l6,000 hectares of state farmland, accounting for 3.3 percent of the total cultivated area. The ten-year plan indicated that state farms would be expanded to 468,000 hectares by l994, accounting for 6.4 percent of the cultivated land.

The primary motive for the expansion of state farms was the desire to reverse the drop in food production that has continued since the revolution. After the l975 land reform, peasants began withholding gad9 grain from the market to drive up prices because government price-control measures had created shortages of consumer items such as coffee, cooking oil, salt, and sugar. Additionally, increased peasant consumption caused shortages of food items such as teff (see Glossary), wheat, corn, and other grains in urban areas. The problem became so serious that Mengistu lashed out against the individual and petit burgeois tendencies of the peasantry and their capitalist mentality on the occasion of the fourth anniversary of military rule in September l978. Mengistu and his advisers believed that state farms would produce grain for urban areas and raw materials for domestic industry and would also increase production of cash crops such as coffee to generate badly needed foreign exchange. Accordingly, state farms received a large share of the country's resources for agriculture from 1982 to 1990, this totaled about 43 percent of the government's agricultural investment. In l983 state farms received 76 percent of the total allocation of chemical fertilizers, 95 percent of the improved seeds, and 8l percent of agricultural credit. In terms of subsidies, between l982/83 and l985/86 the various state farm corporations received more than 90 million birr in direct subsidies. Despite the emphasis on state farms, state farm production accounted for only 6 percent of total agricultural output in l987 (although meeting 65 percent of urban needs), leaving peasant farmers responsible for over 90 percent of production.

The stress on large-scale state farms was under attack by Western donors, who channeled their agricultural aid to the peasant sector. These donors maintained that experiences elsewhere in Africa and in Eastern Europe and the Soviet Union had shown that state farms were inefficient and a drain on scare resources.

Data as of 1991