The continuous increase of input costs and volatility of output prices have made the profitability and sustainability of smallholder cotton production in question. This study was carried out to examine the profitability of irrigated cotton production at Amibara district in the Middle Awash Valley under smallholder producers. 30 producers were purposively selected from the villages considered based on the predominance of irrigated cotton production. Primary data were collected for this study using well-structured questionnaires. Data were analyzed using descriptive statistics and budgetary technique analysis. Likewise, break-even and sensitivity analyses were introduced to determine the break-even price and yield and to account to any changes and risks envisaged. The break-up of production cost structure showed that operational (both manual and machinery) expenses were the prominent components of all variable costs. The principal findings of the enterprise budget analysis was that smallholder irrigated cotton production was a profitable enterprise with a gross margin of 10,294.23 Birr per hectare and a total expenditure of 20,572.17 Birr per hectare. Moreover, the benefit cost ratio of 1.49 was obtained. The break-even price and break-even yield at which the producers are at no loss no profit were 8.35 Birr per kg and 1641.83 kg per hectare. Returns from irrigated cotton were highly sensitive to fluctuations of price and yield than total variable cost. Thus, efforts should be made to improve productivity through provision of appropriate agricultural inputs at the lowest possible cost and reduce price volatility by promoting primary cooperatives at district level working on input output marketing.
