In this study an attempt is made to measure andrncompare the economic performance of state and peasantrnfarms through a case study method . The economic performancernof five state farms in Arsi are compared withrnthat of five peasant associations in the same region.rnThe principal sources of information for this studyrnare the primary data generated at farm level. Variousrncriteria are used to compare the performance of therntwo farm categories. The empirical results of the studyrnreveal that despite all the priorities they enjoy,rnstate farms are performing poorly relative to therntraditional peasant farms. The root causes of inefficienciesrnin the state farms are identified. Finally,rnrecommendations are made to improve efficiency in thernstate farms.