In Northwest part of Ethiopia, many rural households’ means of livelihood is charcoal production. But, the production of charcoal has still far below its attainable level and the demand for charcoal is increasing overtime especially in urban areas. Although there is high demand for charcoal in the urban societies the price paid per quintal of charcoal is not that much enough for charcoal producers. To identify the reasons of unsatisfactory price for charcoal producers, it is mandatory to analyze charcoal production process in relation to production costs and inputs. So, the question that are charcoal producers economically efficient? Needs an empirical answer. To analyze the economic efficiency of charcoal production and its implication to rural development a stochastic production frontier and Probit model are employed. Since, environmental and natural resource sustainability is a n important issue in charcoal production, environmental challenges and marketing challenges will be analyzed by using principal component analysis technique. To do this a cross sectional data from charcoal producers will be collected.

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